In this piece, we will take a look at the 11 best stocks to buy for high returns. If you want to skip our analysis of different investment metrics and the latest stock market news, then take a look at the 5 Best Stocks to Buy for High Returns.
There are several criteria that an investor can use to make an investing decision on the stock market. Broadly speaking, these can be divided into a fundamentals based approach and a technical approach. On the fundamental front, investors analyze a firm's balance sheet, its income statement, and the cash flow statements to see whether there's meat to a firm's evaluation. A technical investor on the other hand looks at share price movements and trends to see whether broader market sentiment can push a stock higher.
When analyzing a stock's fundamentals, one of the most common approaches is to look at the price to earnings ratio. As the title suggests, the P/E ratio divides the firm's share price with its earnings per share. For this purpose, three kinds of EPS can be used. These can be the earnings during the latest fiscal quarter, the trailing twelve month earnings, and forward earnings derived through analysis. The P/E ratio is then used to classify a stock as a growth or a value stock. A growth stock is one that has a high P/E ratio which indicates that investors are confident about paying a higher price today relative to the earnings as they expect that growth will push the earnings higher in the future.
Naturally, this makes growth stocks quite attractive since they carry the potential to deliver massive returns. As an illustration, consider the shares of Advanced Micro Devices, Inc. (NASDAQ:AMD). AMD's P/E ratio just a couple of years back was in the triple digits. This was when the firm had not expanded its chip production, so it was making little money. However, investors were confident that it could grow its market share in the future through successful product design and manufacturing scaling and valued it accordingly. These expectations materialized in the future (i.e. today) since AMD's stock is up by 474% over the past five years.
However, while high growth stocks are attractive and their performance is tightly linked to their fundamentals, a key factor to remember when considering them for an investment decision is the broader stock market climate. Shifts in the economy or the macroeconomic environment have the potential to either hammer growth stocks or push them to new highs. The latter was the case in 2022 as the fundamental dynamics that drove the stock market for the past decade rapidly shifted in the form of rapid interest rate hikes by the Federal Reserve. Higher rates make it difficult for consumers to make pricey technology purchases, raise the stakes for hedge funds to invest in the stock market, and increase the working capital costs of running a business. All three drag down the stock market since they impact corporate performance.
With 2023 now coming to a close, this dynamic appears to be shifting. For instance, consider a new report by the Bank of America Corporation (NYSE:BAC) which maps out money flows into equity funds. This report shows that during the four trading sessions that ended on November 21, 2023, a net of $16.5 billion flew into the funds. Since October 9th, a whopping $40 billion has been piled into equities, which is perhaps the biggest indicator of the changing sentiment around stocks. This data is backed by more figures from the London Stock Exchange Group (LSEG). It reveals that for the week ending on November 2023, U.S. equity funds received $6.27 billion. Sector wise, it was technology that shone, with $2.29 billion of net inflows during the time period. This is interesting since technology is a high growth sector with high P/E ratios. On the flip side, the relatively stable and value based utilities and healthcare sectors saw $382 million and $339 million in outflows - lending more credence to the fact that perhaps the era of growth investing is back.
There is more optimism in the stock market as well. As of Monday, November 20th, 55% of the S&P 500, which is up by 8% in November, was trading above its 200 day moving average. This is a positive development that indicates that a broader set of stocks (as opposed to the tech fueled rally in H1 2023) are on an upward trend. In technical trading, the 200 day moving average is a crucial resistance point that is often seen as a barrier to longer term share out performance.
So, as the stock market clouds start to clear, we thought to take a look at the best stocks to buy for high returns. Some top picks in this list are Uber Technologies, Inc. (NYSE:UBER), ServiceNow, Inc. (NYSE:NOW), and Eli Lilly and Company (NYSE:LLY).
A close-up of a portfolio of stocks, emphasizing the broad equity portfolio of the company.
To make our list of the best stocks to buy for high returns, we ranked the top 25 most popular stocks among the 910 hedge funds part of Insider Monkey's Q3 2023 database by their price to forward earnings ratio. Out of these, the top stocks were selected.
Best Stocks to Buy for High Returns
11. Danaher Corporation (NYSE:DHR)
Latest Forward P/E Ratio: 27.32
Number of Q3 2023 Hedge Fund Investors: 103
Danaher Corporation (NYSE:DHR) is a backend healthcare company that caters to the needs of the biotechnology, pharmaceutical, and other sectors. The firm is expanding its protein consumables portfolio these days as it is acquiring another company for a $5.7 billion price tag.
During Q3 2023, 103 out of the 910 hedge funds tracked by Insider Monkey had invested in Danaher Corporation (NYSE:DHR). Andreas Halvorsen's Viking Global owned the biggest stake among these, which was worth $1 billion.
Just like ServiceNow, Inc. (NYSE:NOW), Uber Technologies, Inc. (NYSE:UBER), and Eli Lilly and Company (NYSE:LLY), Danaher Corporation (NYSE:DHR) is a top hedge fund stock for high returns.
10. Apple Inc. (NASDAQ:AAPL)
Latest Forward P/E Ratio: 28.9
Number of Q3 2023 Hedge Fund Investors: 134
Apple Inc. (NASDAQ:AAPL) is a consumer electronics and personal computing firm. The firm's flagship smartphone, the iPhone, is facing the heat in China right now as holiday spending data shows that local firms Huawei and Xiaomi beat Apple Inc. (NASDAQ:AAPL)'s products.
As of September 2023, 134 out of the 910 hedge funds part of Insider Monkey's database had bought the firm's shares. Apple Inc. (NASDAQ:AAPL)'s largest hedge fund investor is Warren Buffett's Berkshire Hathaway due to its $154 billion stake.
9. Mastercard Incorporated (NYSE:MA)
Latest Forward P/E Ratio: 28.9
Number of Q3 2023 Hedge Fund Investors: 140
Mastercard Incorporated (NYSE:MA) is a technology company that allows consumers and merchants to make and receive payments. These days, the firm is facing the heat in the U.K. as a government report stressed that Britain needs alternative payment platforms to Mastercard Incorporated (NYSE:MA).
By the end of 2023's third quarter, 140 hedge funds out of the 910 profiled by Insider Monkey had held a stake in Mastercard Incorporated (NYSE:MA). Charles Akre's Akre Capital Management owned the biggest stake among these which was worth $2.3 billion.
8. Netflix, Inc. (NASDAQ:NFLX)
Latest Forward P/E Ratio: 30.3
Number of Q3 2023 Hedge Fund Investors: 102
Netflix, Inc. (NASDAQ:NFLX) is one of the world's largest content streaming platforms and one that also produces its own documentaries, shows, and films. The shares are rated Buy on average but the average share price target of $465 is lower than the current share price.
During this year's September quarter, 102 out of the 910 hedge funds part of Insider Monkey's research were the firm's shareholders. Netflix, Inc. (NASDAQ:NFLX)'s largest hedge fund investor is Ken Fisher's Fisher Asset Management since it owns 4 million shares that are worth $1.5 billion.
7. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Latest Forward P/E Ratio: 32.68
Number of Q3 2023 Hedge Fund Investors: 110
Advanced Micro Devices, Inc. (NASDAQ:AMD) is a semiconductor designer known for its GPUs and CPUs. A key beneficiary of the ongoing A.I. wave, the firm's shares appreciated in November on the back of its A.I. products.
As this year's third quarter ended, 110 hedge funds among the 910 that were part of Insider Monkey's database had bought and owned Advanced Micro Devices, Inc. (NASDAQ:AMD)'s shares. Ken Fisher's Fisher Asset Management owned the biggest stake among these which was worth $2.8 billion.
6. Microsoft Corporation (NASDAQ:MSFT)
Latest Forward P/E Ratio: 34.25
Number of Q3 2023 Hedge Fund Investors: 306
Microsoft Corporation (NASDAQ:MSFT) is a mega cap technology giant. It's all drama at the firm these days after its partnership with the world's leading A.I. software company OpenAI was shaken up due to a surprise move to oust and then bring back OpenAI's CEO, Sam Altman.
After digging through 910 hedge funds for their Q3 2023 shareholdings, Insider Monkey discovered that 306 had invested in the company. Michael Larson's Bill & Melinda Gates Foundation Trust was the largest stakeholder as it owned $12.4 billion worth of shares.
Uber Technologies, Inc. (NYSE:UBER), Microsoft Corporation (NASDAQ:MSFT), ServiceNow, Inc. (NYSE:NOW), and Eli Lilly and Company (NYSE:LLY) are some great stocks that hedge funds are buying for high returns.
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Disclosure: None. 11 Best Stocks to Buy for High Returns is originally published on Insider Monkey.