5 High P/E Stocks Loved by Hedge Funds
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We have identified five stocks that might be scary to some investors, but are loved by hedge funds. These stocks trade at P/E ratios that seem completely ridiculous, especially when compared to their industry averages.
The following five stocks are trading at ridiculously high price-to-earnings ratios, yet have a huge following of billionaire fund managers that continue to load up. All companies discussed here are expected to grow EPS by at least 15% over the next five years.
Whole Foods Market (NASDAQ: WFM) is the first company on our list, trading at a P/E ratio of 41x. Whole Foods is considered the largest organic food retailer in North America and saw 3Q EPS that beat consensus estimates of $0.61, by posting $0.63. As well, the company continues to offer a variety of items across various departments and has shown an 8.8% increase in comparable sales in the first three quarters of 2012. With some of the best growth prospects in the grocery industry, Whole Foods is expected to expand annual EPS by 17% over the next five years.
Columbus Circle Investors was the top fund invested in 2Q, owning over 1.6 million shares. Jim Simons upped his 1Q stake by 60%, while Ken Fisher took an entirely new stake in the company—see how hedge funds are trading grocers.
Another stock with high fund interest is Facebook (NASDAQ: FB). The social network trades at 106x earnings and expected to grow EPS at 27% annually over the next five years. Facebook investors were beginning to question user engagement and the company's mobile monetization capabilities, but Facebook knocked earnings out of the park for its most recent quarter, and may have possibly figured out advertising. The company is expected to grow revenue 28% in 2013 and 25% in 2014. Facebook saw two tiger cubs as the top two fund owners. Both funds owned over 1.5 million shares.
Visa (NYSE: V) trades at a P/E of 138x and is expected to grow at an annual growth rate of 20% over the next five years. Visa is expected to grow operating revenues 13% in 2012, after a 14% increase in 2011. Driving revenues will be an increase in payment volumes internationally. As well, banks are gearing more toward credit cards versus debit cards, expanding Visa’s margins overall.
Visa had some of the top fund interest of all our high P/E stocks. Most notably was Warren Buffett, with over 2 million shares in 2Q. Other notables included Ken Griffin and Tiger Global Management, as well as Ken Fisher, who upped his stake 175,000%.
Alexion Pharmaceuticals (NASDAQ: ALXN) develops antibody therapeutics for rare and severe diseases. The company is still up over 30% year to date, but has fallen on rough times over the past week and is down 18% over the last few days. Alexion is trading at a P/E of 107x, but is expected to grow at a 5-year CAGR of 38%. Alexion’s key drug, Soliris, is expected to see sales up 40% in 2012, and 30% in 2103. Soliris is Alexion’s rare blood disorder drug. As well, gross margins are expected to be 88% for both years.
Albeit a biopharma stock, there was much 2Q fund interest. Jim Simons increased his stake 200% to over 1 million shares. As well, Arrowstreet Capital upped their stake over 1000%. Alexion remains to be a top pick of Navellier & Associates.
Amazon.com (NASDAQ: AMZN) trades at a P/E of nearly 300x and sales are expected to be up 28% in 2013, following a 31% increase in 2012. Amazon is expected to continue its onslaught of market share infringement on retailers as well as continue expansion in the hardware business with its Kindle tablets. These various initiatives and projects are expected to grow EPS at 34% over the next five years.
Amazon saw big interest from its top three names including Ken Fisher, John Griffin and Steven Cohen. Fisher and Griffin kept their stakes stable at over 1.7 million shares, while Cohen and SAC Capital boosted their 1Q stake by 240%.
Compare and Contrast
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This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Amazon.com, Facebook, and Whole Foods Market and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Amazon.com, Facebook, Visa, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.