In this article, we will discuss the 11 best new stocks to buy according to hedge funds. If you want to skip our detailed analysis of these companies, go directly to the 5 Best New Stocks To Buy According to Hedge Funds.
According to Ernst & Young’s 2020 initial public offering (IPO) trends report, the US IPO market was significantly slowed down by COVID-19 from March to May of 2020. As of the second quarter of 2020, IPO numbers were down by 28% compared to the same period last year, while IPO proceeds were down by 31%. During this period of market instability, health care firms performed well, representing 60% of IPOs and 45% of proceeds in the second quarter of 2020 ($6.7 billion was raised by 24 IPOs). With 11 IPOs raising $4.0 billion, technology came in second in terms of deal volume and proceeds, accounting for 28% and 27% of all IPOs in the quarter, respectively. In the last quarter of 2020, the market began to pick up the pace and 490 IPOs raised $101.4 billion. In comparison to Q4 2019, this was a 30% increase in deal volume and a 9% increase in proceeds. Moreover, Q4 2020 witnessed the highest amount of money generated since the fourth quarter of 2010, when $130.3 billion was raised by 480 IPOs.
The trend has been maintained in 2021, with the number of IPOs increasing by 677% in the first three months of 2021 since the same time in 2020. Renaissance Capital’s senior market strategist Mathew Kennedy described the 2021 IPO market as “record-breaking, on fire, historic, extremely active.”
With such activity in the market, it is no surprise that hedge funds have a number of stocks on their radar. These include some notable stocks like PayPal Holdings, Inc. (NASDAQ:PYPL) Tesla, Inc. (NASDAQ:TSLA), as well as stocks that recently went public like Airbnb, Inc. (NASDAQ:ABNB) and Vimeo, Inc. (NASDAQ:VMEO).
The list includes some of the best stocks that went public in 2020 and 2021. That's why we call them "new." These stocks are extremely popular among the 873 elite funds tracked by Insider Monkey.
Why pay attention to hedge fund holdings? 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 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). 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.
11 Best New Stocks To Buy According to Hedge Funds
11. DraftKings Inc. (NASDAQ:DKNG)
Number of Hedge Fund Holders: 26
Price as of October 20, 2021: $49.09
DraftKings Inc. (NASDAQ:DKNG) is a sports entertainment and betting company that went public after a merger with Diamond Eagle Acquisition Corp and SBTech, a gaming technology corporation.
According to Insider Monkey’s database, 28 hedge funds have a cumulative stake of $927.8 million in DraftKings Inc. (NASDAQ:DKNG). ARK Investment Management is the leading investor in DraftKings, with a stake of around $711 million.
The US sports betting industry is going through a transformation after the Supreme Court abolished a federal ban on sports betting, and this has allowed DraftKings Inc. (NASDAQ:DKNG) to expand its footprint as more states are coming into the fold.
10. Procore Technologies, Inc. (NYSE:PCOR)
Number of Hedge Fund Holders: 28
Price as of October 20, 2021: $100.10
Procore Technologies, Inc. (NYSE:PCOR) is a provider of construction management software based out of Carpinteria, California. As of the second quarter of 2021, 28 hedge funds hold a stake worth $2.08 billion in Procore Technologies Inc. (NYSE:PCOR).
Procore Technologies Inc. (NYSE:PCOR) wants to revolutionize the old-fashioned construction industry by providing better safety and efficient services on construction sites. Furthermore, through the acquisition of Levelset in September 2021, Procore will be able to offer payment processing services on its platform.
The Street still expects the stock price of Procore Technologies Inc. (NYSE:PCOR) to rise further. David Hynes at Canaccord and Brian Schwartz at Oppenheimer have given the Procore Technologies Inc. (NYSE:PCOR) stock a target price of $110 with a Buy and Outperform rating, respectively.
9. Mister Car Wash, Inc. (NYSE:MCW)
Number of Hedge Fund Holders: 31
Price as of October 20, 2021: $17.70
Mister Car Wash, Inc. (NYSE:MCW) is the biggest car wash chain in the United States with a vast network of 351 facilities providing car washes and support services spread across 21 states. The Tucson, Arizona-based corporation went public in June 2021 at an IPO price of $15. The organization claims to have a 5% market share of the highly fragmented car wash industry.
As of the second quarter of 2021, a $5.2 billion stake in Mister Car Wash Inc. (NYSE:MCW) is under the ownership of 31 hedge funds under the coverage of Insider Monkey. Leonard Green & Partners has the largest shareholding with a stake worth over $4.95 billion. The hedge fund had Mister Car Wash, Inc. (NYSE:MCW) under its wings since 2014.
Elizabeth Suzuki at Bank of America upgraded Mister Car Wash Inc (NYSE: MCW) to a Buy rating with a $23 target price.
In addition to Mister Car Wash Inc. (NYSE:MCW), some of the stocks attracting hedge funds include PayPal Holdings, Inc. (NASDAQ:PYPL), Tesla, Inc. (NASDAQ:TSLA), Airbnb, Inc. (NASDAQ:ABNB), and Vimeo, Inc. (NASDAQ:VMEO).
8. Opendoor Technologies Inc. (NASDAQ:OPEN)
Number of Hedge Fund Holders: 35
Price as of October 20, 2021: $23.53
Opendoor Technologies Inc. (NASDAQ:OPEN) is an online platform for buying and selling residential properties. The Tempe, Arizona-based company has a borrowing capacity of $9 billion to buy homes from owners, renovate them and sell them again at a higher price to make a profit.
Nicholas Jones at Citi initiated coverage on the stock with a Buy rating and a target price of $40.
Opendoor Technologies Inc. (NASDAQ:OPEN) is a popular stock amongst the hedge funds just like PayPal Holdings, Inc. (NASDAQ:PYPL) Tesla, Inc. (NASDAQ:TSLA), Airbnb, Inc. (NASDAQ:ABNB), and Vimeo, Inc. (NASDAQ:VMEO).
Out of the 873 hedge funds being tracked by Insider Monkey, 35 hedge funds hold a position worth $765 million in Opendoor Technologies Inc. (NASDAQ:OPEN), which is equivalent to roughly 5% of its market capitalization. ARK Investment Management has the largest stake in the company, worth over $179 million.
Investment management firm Perpetual Limited mentioned Opendoor Technologies Inc. (NASDAQ:OPEN) in its Q2 2021 investor letter. Here's what the firm said:
“We bought a new position in Opendoor Technologies (OPEN) during the quarter. We have been following the iBuying sector for some time and bought in on recent share price weakness. OPEN is an online real estate company in the USA that aims to streamline the process of buying and selling residential homes into a seamless digital experience. The customer completes all the details relating to their home online and OPEN will make an offer instantly. Once accepted the funds are transferred within a couple of days and this gives convenience, certainty and quick settlement to the consumer. OPEN makes its money by charging the seller a service fee, currently 5% across markets, which replaces the average 6% fee they’d pay to list a home. Homes are typically held for 90-110 days before being resold and are largely funded by a non-recourse credit facility.
To us, OPEN seems like a real disruptor in a sector that has traditionally seen minimal digital disruption. They are currently operating in 21 markets with plans to grow to 100 markets. To date they have been able to show really strong market share gains in their most mature markets with 3.2% share in their first six markets, and within this 4-6% share in core markets of Raleigh-Durham and Atlanta. They are beginning to expand into horizontal verticals such as Title & Escrow and are seeing strong attachment rates of >80%.
Nearly 70% of Americans are homeowners with U$1.6tr/year transacted, which is 2x auto spend and 60% higher than spend on food. If OPEN is able to grow into their new markets and replicate the successes they have seen in some of their first markets, then we believe there is meaningful upside to the stock.”
7. Marqeta, Inc. (NASDAQ:MQ)
Number of Hedge Fund Holders: 35
Price as of October 20, 2021: $27.48
Marqeta, Inc. (NASDAQ:MQ) is a payment processing company based out of Oakland, California. The company is part of an industry that is catering to $45 trillion worth of payments, which is expected to grow to $80 trillion by the end of this decade. Marqeta is only a small fish in the big pond as it processed $60 billion worth of transactions. Marqeta Inc. (NASDAQ:MQ) has modern card issuing platforms that can be modified according to the requirements of every business. Furthermore, the company also has exposure in cryptocurrency payment processing as well and highlighted that it is in partnership with Coinbase Global Inc (NASDAQ:COIN) and other crypto exchange platforms.
Marqeta Inc. (NASDAQ:MQ) opened for public trading in June 2021 at a price of $27. As of the second quarter of 2021, 35 hedge funds in Insider Monkey’s database held a combined stake of $1.07 billion in the company, which is equivalent to 7.2% of its market capitalization. According to Q2 2021 13-F filings, Stephen Mandel’s Lone Pine Capital has a stake worth $490 million in Marqeta Inc. (NASDAQ:MQ).
The Street seems bullish on the stock as well. Andrew Jeffrey at Truist Securities initiated coverage on Marqeta Inc. (NASDAQ:MQ) with a Buy rating and $37 target price.
Baron Funds shared its stance on Marqeta Inc. (NASDAQ:MQ) in its Q2 2021 investor letter. Here's what the asset management firm said:
“We participated in the IPO of Marqeta, Inc., a modern card-issuing platform that enables companies to run their own payment card programs. Marqeta is built on modern technology and can be accessed with open APIs that are easy to use and developer-friendly, resulting in most of its clients coming from word-of-mouth referrals instead of outbound sales. The modern technology stack allows for the programmability of cards, enabling companies to authorize transactions in real time and control how the cards are used. This programmable nature means that cards can be used in a range of use cases for which traditional cards are not suitable. Examples include cards with spending controls for different employees and purchase categories as well as cards for food delivery companies that restrict spending only to authorized purchases to reduce fraud. While there are other card issuers, none can provide the level of functionality at large scale that Marqeta can. Marqeta generates revenue from the interchange fees earned on transactions that are processed on its cards. It shares a portion of this with its customers, meaning that card solutions become a revenue stream rather than a cost center. Many of the company’s clients are fast growing, and Marqeta continues to innovate the features on its platform, which in turn give its clients more tools with which to develop new card payment products and experiences. Given a largely fixed cost structure, Marqeta earns high incremental margins on each dollar spent on its cards. Led by founder-CEO Jason Gardner, we believe that Marqeta is a high-quality, differentiated business in the FinTech space with a long runway for growth.”
6. Qualtrics International Inc. (NASDAQ:XM)
Number of Hedge Fund Holders: 37
Price as of October 20, 2021: $44.21
Qualtrics International Inc. (NASDAQ:XM) provides software that aids companies in understanding the insights of customers and employees regarding products and services. The organization claims to have over 13,000 leading brands as its customers.
The stock price of Qualtrics International Inc. (NASDAQ:XM) has increased by 48% since going public in January 2021. Meanwhile, the S&P 500 Index has experienced a rise of 10.3% during the same period. Investment advisory Oppenheimer revised the target price from $55 to $60 following better-than-expected Q3 2021 results.
In its Q2 2021 investor letter, ClearBridge Investments discussed its stance on Qualtrics International Inc. (NASDAQ:XM). Here's what the investment management firm said:
"On the sell side, we closed out of Qualtrics, an experience management software company, where we were unable to build a sufficient position following its successful IPO."
As of the second quarter of 2021, 37 hedge funds held stakes worth $2.43 billion in Qualtrics International Inc. (NASDAQ:XM).
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Disclosure: None. 11 Best New Stocks To Buy According to Hedge Funds is originally published on Insider Monkey.