It’s no surprise that investors like tech stocks. The NASDAQ Composite Index, which contains a lot of large tech companies has gained over 29% since the beginning of the year and analysts expect further growth in 2018 as favorable economic conditions and the new GOP tax plan that cuts the corporate tax to 21% from 35% is expected to provide companies with more cash that they can either invest in R&D or return to shareholders through dividends and buybacks. Cowen analysts estimated that Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), and Facebook Inc (NASDAQ:FB) will save $4.50 billion on taxes in aggregate in 2018 due to the new tax plan, which should provide these companies with a substantial boost in EPS. Moreover, Evercore ISI analysts expect tech stocks to ride a wave of growth as they “are leveraging the Internet to disrupt and take profits from large established industries, a dynamic that is driving real earnings and free cash flow growth.”
Evercore analyst Anthony DiClemente further said in his note to clients that social media giant Facebook Inc (NASDAQ:FB) will be among the best-performing tech stocks in 2018, forecasting a 30% growth. His other favorite stocks are also among the so-called FANG companies, Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL), both of which together with Facebook Inc (NASDAQ:FB) were ranked as ‘Outperform’. The only FANG stock that was not ranked as ‘Outperform’ was Netflix Inc (NASDAQ:NFLX).
Tech stocks were responsible for many records and milestones that the US stock market has hit this year, so it’s not surprising that the stocks are among the darlings of large institutional investors, such as hedge funds. At ams-2010, we monitor the investments of more than 650 hedge funds through their quarterly 13F filings and each quarter we compile a ranking of hedge funds’ favorite stocks based on the total number of funds from our database that disclosed long positions in these companies. In this way, as of the end of September, eight out of the top 10 stocks that hedge funds are most bullish on were technology stocks, three of which are the tech stocks mentioned by Evercore ISI as poised for strong returns in 2018.
We monitor hedge funds’ investments not just to compile a ranking of the stocks that they are collectively bullish on. The data is used to identify a group of stocks that have the most potential to beat the market. Through extensive research and real time data collected over the last couple of years, we determined that hedge funds get an edge over smaller investors in the small-cap space, because smaller companies are usually overlooked by the broader market and are not as well covered by analysts and financial media as their larger peers. In this way, ams-2010’s best performing hedge funds strategy returned 67.4% since May 2014 and managed to beat the S&P 500 ETF (SPY) by over 20 percentage points. The strategy employs a proprietary methodology to identify the best stock picks of the 100 best performing hedge funds and we share these picks with our premium subscribers in quarterly newsletters. You can read more about our strategy and subscribe to our quarterly newsletter by .
In the meantime, let’s take a closer look at top five tech stocks that hedge funds like the most, based on the third-quarter round of 13F filings. In addition, we are going to see how the sentiment towards these stocks changed over the last year.