We recently published a list of Warren Buffett and hedge funds are crazy about these 10 stocks. In this article, we take a look at how Amazon.com, Inc. (NASDAQ:AMZN) compares to the other stocks recommended by Warren Buffett and hedge funds.
Warren Buffett will go down in history as one of the most successful investors on Wall Street, a feat he achieved through integrity, wisdom and wit. He is called the Oracle of Omaha when it comes to his investment firm, Berkshire Hathaway. Since 1958, he has achieved an annual gain of 19.8%, more than double the 9.9% gain of the S&P 500. Berkshire Hathaway stock has gained over 3,787,464% since 1965, compared to a 24,708% gain for the S&P 500, underscoring Buffett’s stock-picking skills.
Buffett is one of the most successful investors in Wall Street history, having amassed a fortune of $138 billion, according to Bloomberg’s Billionaire Index. His net worth could have been much higher if he hadn’t donated generously to various charities. Unlike many other billionaires who prefer a lavish lifestyle of big houses and luxury cars, Buffett is often considered one of the most humble billionaires in the world.
The significant investment gains over the years result from Buffett buying stocks in various sectors and holding them for years and even decades. Buffett’s secret to success lies primarily in investing in established, reputable companies with clear competitive advantages. Although this approach focuses heavily on undervalued stocks, it also occasionally includes investments in high-growth companies.
The investment strategy is often supported by the massive cash that Berkshire Hathaway generates by generating earnings per share on most of its investments and by paying dividends. Yet it is becoming increasingly clear that Warren Buffett and hedge funds are crazy about a certain clique of stocks.
High-growth companies and market leaders in their respective fields are some of the factors that Buffett and most hedge funds closely watch when selecting stocks. Technology stocks, which consist of some of the largest companies, made up 41% of Buffett’s 13F portfolio at the end of March, an advantage that has always allowed him to outperform the overall market.
Diversification is another key factor in the top stocks Warren Buffett and hedge funds are after. While technology stocks make up the largest share, the billionaire is also heavily invested in financials (21%) and basic materials (10.7%). Diversification is in line with the billionaire’s value investing principles, which include undervalued investments in various sectors.
Over the years, Buffett has always looked for securities that are underpriced relative to their intrinsic value. Instead of focusing on short-term gains in the market, the Berkshire Hathaway boss selects stocks based on their long-term potential. This was one of the reasons why Berkshire Hathaway shares ended 2023 up 15.8%, marking the eighth consecutive year of gains. The largest increase of 29.6% came in 2021 at the height of the COVID-19 pandemic.
While Berkshire Hathaway had $189 billion in cash at the end of the first quarter, the cash balance is expected to rise to $300 billion by the end of the third quarter. While most people will wonder why Buffett isn’t putting much of his money to work, the billionaire is always cautious and focuses on value investing rather than investing just for the sake of money.
The billionaire investor always follows the mantra: never invest in overvalued stocks. Therefore, he always takes time to look for value investments that trade at low valuations. Moreover, due to its sheer size, Berkshire Hathaway can only invest its money in a few companies that significantly impact its returns. To make matters worse, investments in cash equivalents such as short-term Treasuries currently offer returns of over 5%, which is quite high at current levels. Therefore, Warren Buffett and company are specifically looking for the perfect investment at the perfect price, and that opportunity could arise at any time.
In the recent past, Buffett has also gone against the grain as the focus shifted away from oil and gas investments in the wake of the energy transition. Buffett remains optimistic about investment opportunities in the energy sector in light of the Carbon Care initiatives, even as the largest players continue to make significant profits from the lucrative fossil fuel business. Buffett and hedge funds have also shown a keen interest in stocks that offer access to new technologies such as artificial intelligence, which are driving up valuations in the market.
Our methodology
In this article, we take a look at some of the top stocks that Buffett and other hedge funds have invested heavily in. Warren Buffett and hedge funds are crazy about these 10 stocks, in part because of their growth numbers and long-term prospects. While some of the stocks trade at a premium, they are market leaders in their respective fields and therefore well positioned to generate value over the long term. We have ranked the stocks in Warren Buffett’s portfolio based on the number of hedge funds invested in and picked the top 10.
A customer enters an internet retail store, illustrating the convenience of online shopping.
Amazon.com, Inc. (NASDAQ:AMZN)
Berkshire-HathawayValue of the share: 1.80 billion US dollars
Number of hedge fund investors: 302
Amazon.com, Inc. (NASDAQ:AMZN) is the stock that Warren Buffett and hedge funds love because of its leadership in e-commerce and cloud computing. While Amazon.com, Inc. (NASDAQ:AMZN) has made a name for itself selling goods online, it is increasingly becoming a force to be reckoned with as it continues to use artificial intelligence to extend its lead in cloud computing.
Amazon Web Services, the company’s cloud division, is already developing its own chips and increasingly integrating AI into its offerings to strengthen its competitive advantage over Microsoft (MSFT). In addition, Amazon.com, Inc. (NASDAQ:AMZN) is already considering new growth opportunities through its satellite internet subsidiary Kuiper.
At the end of the first quarter, Warren Buffett and a total of 302 hedge funds owned shares in the technology giant, which underlines why it is one of the top stocks.
In its May 2024 investor letter, Lakehouse Global Growth Fund provided an update on Amazon.com, Inc. (NASDAQ:AMZN) and shared its analysis and perspective on the company’s performance and future prospects:
“Amazon.com, Inc. (NASDAQ:AMZN) delivered impressive quarterly results that also easily exceeded analyst expectations. Net sales increased 13% year over year to $143.3 billion and operating profit increased 219% to $15.3 billion (versus the high end of guidance of $12.0 billion). As has been the case for several quarters, the highlight of the result was the significant improvement in profitability metrics as management continues to drive cost efficiencies in retail and Amazon Web Services (AWS). Amazon delivered to Prime members faster than ever before. In March, nearly 60% of Prime member orders arrived the same or next day in the 60 largest U.S. metropolitan areas, and 3 out of 4 items were delivered the same or next day in London, Tokyo and Toronto. Overall, we continue to believe that the market is underestimating the length of the core retail growth curve that lies ahead (note that e-commerce sales in the US still only represent 15% of total retail sales) and that there is still significant margin improvement possible as economies of scale and efficiency continue to materialize.”
Total AMZN 1st place on our list of the best stocks to buy according to Warren Buffett and hedge funds. You can visit Warren Buffett and hedge funds are crazy about these 10 stocks to see the other stocks that are on hedge funds’ radar. While we recognize AMZN’s potential as an investment, we believe some AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than AMZN but trades at less than 5x its earnings, read our report on the cheapest AI stock.
READ MORE: 10 very high yield dividend stocks with upside potential and the 10 best blue chip dividend stocks to buy.
Disclosure: None. This article was originally published on Insider Monkey.
