In this article, we discuss the 10 best Roth IRA stocks hedge funds are buying. If you want to skip our detailed analysis of these stocks, go directly to the 5 Best Roth IRA Stocks Hedge Funds are Buying.
Roth IRA accounts have been making headlines across the finance world over the past few weeks after non-profit news platform ProPublica released a report detailing how billionaire investor Peter Thiel had transformed a less than $2,000 Roth IRA investment into a $5 billion tax-free retirement plan. The report also highlighted other important figures on Wall Street that had used the benefits offered by Roth IRA accounts, including titans like Ted Weschler, Warren Buffett, and Randall Smith, among others.
Roth IRA accounts intend to incentivize savings by offering the average citizen tax-free growth and withdrawals during retirement provided certain conditions are met after the account is opened and savings deposited. These accounts have been around for more than two decades and offer modest growth in savings, as an average Roth IRA account offers annual returns of 7-10%. If investors can commit to a handsome amount in savings every month, these accounts offer the best possible retirement savings plan for Americans.
Some of the popular Roth IRA stocks that hedge funds are piling into these days include Microsoft Corporation (NASDAQ: MSFT), Amazon.com, Inc. (NASDAQ: AMZN), and The Walt Disney Company (NYSE: DIS), among others. These firms weathered the pandemic and are well-poised to take advantage of the post-pandemic economic recovery. The long-term outlook on the earnings of these firms is also positive, with most analysts bullish on the stocks. They offer solid growth potential as well, incentivizing savings through Roth IRA accounts.
According to a report by the Tax Policy Centre, close to 44 million households in the United States owned an IRA in 2017, highlighting the popularity of these accounts in the country. Of these, Roth IRAs were the second most popular account choice, with at least 19% of all households in the nation owning such an account. The pandemic-related problems have served to highlight the importance of savings and more people in the US are now lining up open Roth IRAs. Hedge funds are also jumping on the bandwagon.
The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context in mind, here is our list of the 10 best Roth IRA stocks hedge funds are buying.
The stocks in this list are usually recommended by market experts and analysts for Roth IRA. These stocks are also very popular among the 866 hedge funds tracked by Insider Monkey as of the first quarter of 2021. We ranked these stocks based on the number of hedge funds having stakes in them, from smallest to largest.
Best Roth IRA Stocks Hedge Funds are Buying
10. Shopify Inc. (NYSE: SHOP)
Number of Hedge Fund Holders: 91
Shopify Inc. (NYSE: SHOP) is placed tenth on our list of 10 best Roth IRA stocks hedge funds are buying. The stock has offered investors returns exceeding 44% over the course of the past twelve months. Shopify Inc. (NYSE: SHOP) owns and operates an ecommerce platform. The firm recently announced the purchase of Primer, a platform that uses augmented reality technology to market home design services. The share price of the online retailer jumped by close to 1% after the announcement was made.
On June 30, investment advisory Loop Capital maintained a Buy rating on Shopify Inc. (NYSE: SHOP) stock and raised the price target to $1,600 from $1,400, highlighting that the revenue sharing model change would attract more partners to the ecommerce firm.
Out of the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Lone Pine Capital is a leading shareholder in Shopify Inc. (NYSE: SHOP) with 1.7 million shares worth more than $1.8 billion.
Just like Microsoft Corporation (NASDAQ: MSFT), Amazon.com, Inc. (NASDAQ: AMZN), and The Walt Disney Company (NYSE: DIS), Shopify Inc. (NYSE: SHOP) is one of the best Roth IRA stocks hedge funds are buying.
“While we are pleased with the results of these specific purchases, we made a huge mistake of omission at that time. This mistake will likely be one of the biggest we ever make in our careers. Specifically, we did deep work on Shopify and loved everything about the business qualitatively. Unfortunately, we ultimately found ourselves unable to get comfortable with the numbers.
We built our model up from the key performance indicators (KPIs) that drive revenues. Our last save of the model dated 8/3/2016 looked as follows: (Page 2). These numbers seemed right from everything we understood about the company. While we tend not to rely on sell-side consensus estimates before finishing our own workup of the business, we do give them a look once we feel comfortable with how we have approached our analysis as it is often helpful to get a sense of what the average participant in the market expects the business to do. With Shopify, the sell-side consensus was so far from where our numbers were shaking out, it seemed almost impossible that we were basing our analysis on the same underlying information. Our natural next step was thus to take the sell-side consensus data and work backwards to figure out the implied expectations on each of the key revenue drivers. Here is what the sell-side consensus looked like as at the time: (Page 2).
Shopify’s actual revenues for 2016-2018 ended up being $389m, $673m and $1,073m. In other words, not only were we justifiably far more optimistic than the consensus estimate, but we also were far too conservative in terms of how the company actually performed.
The nature of our job as securities analysts is to take calculated risks, in an uncertain world where the “true” answer is inherently unknowable before the fact. We operate in what many call an “efficient market” and subscribe to the belief that for the most part, markets are generally pretty efficient and it requires differentiated analysis to find a return above what the market can offer. So why did we pass on Shopify despite 1) deeply believing in the qualitative elements of the business; and, 2) seeing a meaningful gap between what we expected and the consensus expected? The answer is unfortunate but simple: we lacked confidence in ourselves. It was the first time we truly experienced such a stark divergence between our expectation and the consensus and the result was the inclination was to pound ourselves over the head with how dumb we must be, rather than the other way around. We also learned that the truly great companies use their strong business advantages, smart management and execution to raise the bar every step along the way. Obviously this is a cycle which cannot continue ad infinitum, but especially in instances where our qualitative work identifies the inherent strengths in the business and the numbers shake out to be quite fair, the consistent “raising of the bar” can be a potent driver for the stock.
Please do not judge us too harshly for our mistake on Shopify, for we have from the very beginning made one commitment above all else to both our clients and ourselves: that we will be better today than we were yesterday, and better tomorrow than we are today. While this mistake was quite costly, it ended up being a key confidence and process builder.”
9. Bank of America Corporation (NYSE: BAC)
Number of Hedge Fund Holders: 97
Bank of America Corporation (NYSE: BAC) is a North Carolina-based financial services firm. It is placed ninth on our list of 10 best Roth IRA stocks hedge funds are buying. The company’s shares have offered investors returns exceeding 56% over the course of the past year. On July 16, news platform CoinDesk reported that the bank, the second largest in the US, had allowed some clients to trade in Bitcoin, the most popular cryptocurrency. The policy shift marks a key milestone for the crypto industry that is reeling from price volatility.
On July 6, investment advisory Keefe Bruyette initiated coverage of Bank of America Corporation (NYSE: BAC) stock with a Market Perform rating and a price target of $40, underling that the outlook on large-cap banks was positive despite price volatility in macro trade.
At the end of the first quarter of 2021, 97 hedge funds in the database of Insider Monkey held stakes worth $45 billion in Bank of America Corporation (NYSE: BAC), down from 99 in the previous quarter worth $35 billion.
Alongside Microsoft Corporation (NASDAQ: MSFT), Amazon.com, Inc. (NASDAQ: AMZN), and The Walt Disney Company (NYSE: DIS), Bank of America Corporation (NYSE: BAC) is one of the best Roth IRA stocks hedge funds are buying.
8. Adobe Inc. (NASDAQ: ADBE)
Number of hedge fund holders: 107
Adobe Inc. (NASDAQ: ADBE) stock has returned 32% to investors over the past year. It is ranked eighth on our list of 10 best Roth IRA stocks hedge funds are buying. Adobe Inc. (NASDAQ: ADBE) markets software for several creative professionals, including animators, digital artists, and photographers. The firm posted earnings for the second fiscal quarter on June 17, reporting earnings per share of $3.03, beating market estimates by $0.21. The revenue over the period was $3.8 billion, up 22% year-on-year.
On June 18, investment advisory JP Morgan maintained an Overweight rating on Adobe Inc. (NASDAQ: ADBE) stock and raised the price target to $660 from $595, noting the positive earrings results for the firm in the second quarter and the strength of products.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Adobe Inc. (NASDAQ: ADBE) with 5.9 million shares worth more than $2.8 billion.
In addition to Microsoft Corporation (NASDAQ: MSFT), Amazon.com, Inc. (NASDAQ: AMZN), and The Walt Disney Company (NYSE: DIS), Adobe Inc. (NASDAQ: ADBE) is one of the best Roth IRA stocks hedge funds are buying.
Here is what Polen Capital has to say about Adobe Inc. (NASDAQ: ADBE) in its Q1 2021 investor letter:
“Adobe and Autodesk are both prime examples of the rotation that occurred during the quarter. Both are dominant businesses in their respective markets, which are experiencing structural tailwinds. Despite each business’s position of strength, the stocks of cyclicals and businesses with higher leverage and lower profitability were more favored this past quarter. In stark contrast, Adobe and Autodesk both have low leverage, high levels of profitability, high recurring revenues that mitigate cyclicality, and are both capital-light business models—all attributes we appreciate as investors. Adobe and Autodesk were also two of the top three performers within the Portfolio during 2020.”
7. Berkshire Hathaway Inc. (NYSE: BRK-A)
Number of Hedge Fund Holders: 111
Berkshire Hathaway Inc. (NYSE: BRK-A) is placed seventh on our list of 10 best Roth IRA stocks hedge funds are buying. The company’s shares have returned 43% to investors over the past twelve months. The firm operates as a holding company with interests in the insurance, commodities, and finance businesses. Berkshire Hathaway Inc. (NYSE: BRK-A) has recently ignited speculation around the purchase of chocolate-maker Hershey after a plane belonging to the chocolate firm was spotted in Omaha, the headquarters of Warren Buffett, the chief of the holding company.
On June 8, news publication The Wall Street Journal reported that Berkshire Hathaway Inc. (NYSE: BRK-A) had agreed to purchase a stake worth $500 million in Nu Pagamentos SA, a Brazilian fintech firm as part of a plan to expand reach in the sector.
At the end of the first quarter of 2021, 111 hedge funds in the database of Insider Monkey held stakes worth $19 billion in Berkshire Hathaway Inc. (NYSE: BRK-A), up from 110 in the preceding quarter worth $20 billion.
Berkshire Hathaway Inc. (NYSE: BRK-A) is one of the best Roth IRA stocks hedge funds are buying, just like Microsoft Corporation (NASDAQ: MSFT), Amazon.com, Inc. (NASDAQ: AMZN), and The Walt Disney Company (NYSE: DIS).
“Despite the considerable rise in stock markets over the past year, there are still many attractive opportunities. Human nature also is playing a bit into our hands. Investor crowds often chase popular stocks, hot IPOs, or mysterious SPACs and completely leave aside stocks they consider boring and not sexy enough. A typical example of this category is our long-term largest position in Berkshire Hathaway. Since we bought it for the first time, its price has nearly quadrupled and yet it remains just as undervalued today as it was at that time. Considering the current rate at which it is buying back its own shares and the amount of cash that Berkshire Hathaway has, my greatest wish as a shareholder is for the company’s share price to remain as low as possible for as long as possible.”
6. Apple Inc. (NASDAQ: AAPL)
Number of Hedge Fund Holders: 127
Apple Inc. (NASDAQ: AAPL) stock has returned 44% to investors in the past year. It is ranked sixth on our list of 10 best Roth IRA stocks hedge funds are buying. The company is based in California and has interests in a wide range of technology-related businesses, including the making and selling of premium electronic devices. On July 14, investment bank JP Morgan noted that the outlook for the future sales of Apple Inc. (NASDAQ: AAPL) products were strong and the company was in line to outperform investor expectations in the long run.
On July 19, investment advisory Deutsche Bank maintained a Buy rating on Apple Inc. (NASDAQ: AAPL) stock with a price target of $165, noting that the share price had room to climb higher considering strong business momentum.
At the end of the first quarter of 2021, 127 hedge funds in the database of Insider Monkey held stakes worth $130 billion in Apple Inc. (NASDAQ: AAPL), down from 146 in the preceding quarter worth $142 billion.
Apple Inc. (NASDAQ: AAPL) is one of the best Roth IRA stocks hedge funds are buying, alongside Microsoft Corporation (NASDAQ: MSFT), Amazon.com, Inc. (NASDAQ: AMZN), and The Walt Disney Company (NYSE: DIS).
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
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Disclose. None. 10 Best Roth IRA Stocks Hedge Funds are Buying is originally published on Insider Monkey.