This is a momentum investor’s dream — and a nice boost for the Tiger-related crowd.
On Monday, Credit Suisse sharply raised its price targets on the three most popular hedge fund stocks at the end of the second quarter and three of the four so-called FANG stocks: Facebook, Amazon.com, and Google parent Alphabet.
In separate reports sent to clients, Credit Suisse says it is taking these actions as it previews third-quarter results and updates its valuations of the stocks as it looks out to 2017.
“Despite the temptation to take a more defensive stance following what has been a difficult year for investors, we continue to favor those companies who continue to aggressively play offense with rapid product development to propel share gains at the expense of the competition,” Credit Suisse tells clients in a series of reports sent on Monday.
At the end of June, Facebook, Amazon.com, and Alphabet had at least 169, 160, and 141 individual hedge fund investors, respectively, according to Goldman Sachs.
They also were three of the five stocks that had the most hedge funds including their shares among their top-ten holdings, according to the bank.
In addition, these three stocks were among the four most popular stocks held by hedge funds with roots to Julian Robertson, Jr.’s Tiger Management, according to Novus.com.
For example, at the end of June, 25 Tiger-related funds — or roughly half — held a position in Facebook, 20 in Amazon.com, and 15 in Alphabet’s C shares, according to Novus. Ten funds held Alphabet’s A shares.
Credit Suisse’s move underscores the premium many investors place on the fastest-growing new-economy companies.
It also evokes memories of the Nifty 50 stocks in the 1960s and early 1970s, when the stocks of 50 companies — including Xerox, Kodak, and IBM — were deemed to be ones investors could hold forever. Alas, this strategy did not end well for most of those stocks, which wound up tanking in the vicious 1973–’74 bear market. Several of these companies were fading by the early 1980s.
Regardless, Credit Suisse raised its price target on Facebook from $154 to $170. At the same time, it tweaked its earnings estimates for the next three years, which results in a slight increase for 2016 but decreases for the two ensuing years.
It notes Facebook is currently trading at 25 times its 2017 estimate and 20 times its 2018 estimate, which is not pricey given the bank expects the social media pioneer to generate 26 percent annual earnings-per-share growth over the next five years. It asserts that investors will “overcome concerns around tougher comparisons” beginning with the fourth quarter of this year.
Besides, Credit Suisse stresses, Wall Street has still not included Instagram, Messenger, and WhatsApp in their earnings models.
The stock is already up 23 percent for the year and has swelled about four and a half times its price at the end of 2012.
Credit Suisse also raised its price target on e-commerce pioneer Amazon.com from $920 to $1,050.
One reason for its bullishness: The bank forecasts that within five years, the company’s controversial Amazon Web Services (AWS) business will account for about 40 percent of the bank’s free-cash-flow estimate. It also asserts that its estimates for AWS could be conservative.
The stock is up 21 percent this year and has more than tripled since the end of 2012.
In the case of Alphabet, Credit Suisse raised its price target on the A shares from $940 to $1,070.
Part of its bullishness is based on what it calls a larger-than-expected contribution from Google’s larger non-search businesses, such as YouTube, Play, and, eventually, Google Cloud Platform (GCP). “We submit that the stock warrants a higher multiple,” Credit Suisse states in its report.
The stock is only up 4 percent this year. However, it has more than doubled since the end of 2012.
