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In this article we presented the 10 best large-cap stocks to buy now according to billionaire Ray Dalio. Click to skip ahead and see the 5 best large-cap stocks to buy now.
The American billionaire Bridgewater founder Raymond Thomas Dalio is one of the best hedge fund managers as Bridgewater returned the largest cumulative profits ever. Dalio’s hedge fund has generated $50 billion in gains for its investors through 2017. Since 1985, the legendary investor Dalio who is also known as ‘macro investor’ has turned a two-room home business into an international hedge fund giant that is currently employing more than 1,500 people and managing more than $165 billion in total assets.
In this article, our focus will be on Ray Dalio’s stock-picking strategies and investments in the top large caps. The macro investor has held almost $8.13 billion of stocks compared to the previous market value of slightly below $6 billion, according to the latest quarterly fillings.
Before moving deeper into Dalio’s stock picks and largest investments, let’s briefly look at what strategies the legendary investor uses for stock pickings.
Diversifying a stock portfolio is a key for success and mitigating risk, according to the billionaire investor. Investing legend Ray Dalio suggests investors spread out investments and balance the risks of each investment in order to avoid large amounts of volatility.
Ray Dalio of Bridgewater Associates
Although Dalio likes to invest for the long-term, he has always been aggressive in diversifying his stock portfolio according to the macroeconomic trends. We can clearly see the effects of this on Bridgewater Associates' stock picks in the latest quarter. The firm invested billions of dollars in new stock picks and sold out several positions to align the portfolio with changing market trends.
Dalio’s hedge fund has purchased 130 stocks and added to its 276 existing positions. Meanwhile, the hedge fund has sold out 83 stocks and reduced positions in 18 stocks. The top ten positions are accounting for 53.54%.
The billionaire investor also recommended other investors to learn the stock investing tactics to deal with long-term market cycles.
“If you deviate from that balanced mix — which I don’t recommend doing because market timing is a tough game for a non-professional and for professionals to play well — know how to play the cycles,” Dalio said.
“Know how to buy when everyone else wants to sell, and how to you sell when everyone else wants to buy,” he added.
While Ray Dalio's reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as 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 78 percentage points since March 2017 (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 16. 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.
Before listing the 10 best large-cap stocks to buy now according to billionaire Ray Dalio, let's take a look at why you should be investing in large-cap stocks. Since the end of 2014 the S&P 500 ETF (SPY) returned 79.8% and beat the small-cap Russell 2000 ETF (IWM) by 21 percentage points. We are in a new era where technological breakthroughs enabled larger companies to lower their costs by getting bigger and bigger, and this in return would help them attract more customers and keep growing. We are going towards a "winner takes all" world. For example technological breakthroughs enabled Alphabet Inc. (GOOGL) and Facebook (FB) steal large market shares from traditional media companies. In Google's case the search giant indexes the entire internet, news articles published by media companies, and videos provided by users to generate enormous profits because of its low cost structure. Facebook completely relies on free user generated content as well as news articles that are produced by media companies to attract billions of eyeballs. Traditional media companies have to spend a large portion of their budgets on reporter salaries and infrastructure to support those reporters. This results in high content costs and large losses. As a result local news outlets across the United States have been going out of business over the last 15 years whereas Google and Facebook thrive.
Amazon uses a cut throat "negative profits" strategy to consolidate the entire retail industry. It is able to finance this strategy by funneling large profits generated by its cloud business. Amazon's other advantage is that it doesn't have to incur the same large real estate costs that traditional retailers have to incure. The coronavirus pandemic also helped Amazon immensely. Sometimes it is better to be lucky than good.
Another factor that's helping large tech companies to get bigger is that they have been allowed to acquire much smaller challengers without any scrutiny. For exmaple, Facebook swallowed Instagram and Whatsapp and the regulators didn't even lift their fingers. Even though we are starting to see some activity in terms regulations, the regulatory environment still favors larger companies.
A third factor that is in favor of large-cap companies is political power. Do you remember government's Paycheck Protection Program that was "designed" to help small businesses to weather the coronavirus pandemic? Well, the program distributed $522 billion in loans and more than half of these loans went to bigger businesses. Only 28% of the $522 billion went to small business each of which received less than $150,000. During the 2008 financial crisis, small companies were allowed to fail, larger companies were bailed out. Overall, we believe we are still in an economic and political environment that favors larger companies.
Let’s now start reviewing whether the top ten large-cap stocks to buy according to Ray Dalio worth considering in a rapidly changing market environment.
10. McDonald's Corporation (NYSE: MCD)
MCD ranks 10th in our list of the 10 best large-cap stocks to buy now. One of the oldest fast-food chains McDonald's (NYSE: MCD) has been a member of Dalio’s stock portfolio since the beginning of this year. The billionaire investor invested significantly in the fast-food chain during the September quarter as Mcdonald's performed well during the pandemic. Bridgewater currently holds 350,908 shares of MCD valued at $77 million.
With a market capitalization of $154 billion, McDonald also offers dividends along with steady share price gains. It has raised dividends in the past 19 successive years while its share price saw a terrific run of 167% in the past ten years. The future fundamentals also appear strong considering sustainable growth in revenue and earnings.
"The resilience of the McDonald's (MCD) system was on display during the third quarter as the competitive strength of our business and the 3 D's – Digital, Delivery, and Drive-Thru – led to significant global comparable sales recovery," said McDonald's Chief Financial Officer Kevin Ozan.
9. Costco Wholesale Corporation (NYSE: COST)
The warehouse chain Costco Wholesale Corporation (NYSE: COST) is among the best large-cap stocks to buy according to Ray Dalio. Ray Dalio hedge fund Bridgewater first initiated a position in Costco in the first quarter of this year, but it expanded its position in the warehouse chain by more than 1000% during the September quarter. The firm currently holds 218,662 shares of Costco valued at $77 million, representing 0.93% of the overall portfolio.
Costco is among the biggest beneficiaries of the pandemic. The warehouse chain has generated double-digit growth in comparable sales and earnings in the latest quarter. Shares of Costco soared almost 27% so far this year. Moreover, the company has raised the quarterly dividend by 7.7% at the beginning of this year and announced a massive special dividend of $10 per share last month.
8. Pinduoduo Inc. (NASDAQ: PDD)
PDD ranks 8th in our list of the 10 best large-cap stocks to buy now. The Chinese e-commerce platform Pinduoduo (NASDAQ: PDD) has been a permanent member of Ray Dalio’s hedge fund over the last six quarters. It appears that Dalio’s investment worked in their favor because shares of the Chinese e-commerce platform jumped almost 300% in the past twelve months alone, thanks to consumer's shift towards online platforms amid the pandemic.
Bridgewater Associates has added substantially to its existing position during the third quarter due to robust revenue growth trends along with strong future fundamentals. Pinduoduo has generated year over year revenue growth of 89% in the September quarter. Its active users grew 50% in the September quarter from the year-ago period.
“Our strategic priorities are informed by the changes in consumer habits that we observe and anticipate. We continue to innovate in order to meet such needs, especially in the agricultural industry,” Mr. Lei Chen, Chief Executive Officer of Pinduoduo said.
7. PepsiCo, Inc. (NASDAQ: PEP)
PEP ranks 7th in our list of the 10 best large-cap stocks to buy now. The food and beverage giant PepsiCo (NASDAQ: PEP) gained Ray Dalio’s confidence as Bridgewater has created a big stake in the latest quarter. The firm bought 693,736 shares during the latest quarter valued at $96 million.
PepsiCo is one of the favorite stocks among defensive investors amid its 48 years long dividend growth history and steady share price gains. The market analysts are bullish over the fundamentals of the food and beverage giant.
Analyst Chris Carey: "PEP results have been resilient amidst COVID; and with a consistent algorithm and valuation in line with historicals, we expect the stock to track the group. We initiate with a positive lean and outline the case herein that could drive earnings catalysts. We simply need time to assess if these scenarios become reality, namely PBNA, and view EPS expectations as reasonable for now, hence the Equal Weight rating."
6. Johnson & Johnson (NYSE: JNJ)
Ray Dalio took a big stake in Johnson & Johnson (NYSE: JNJ) in the September quarter by purchasing 665,402 shares valued at $99 million. It is the 19th largest stock investment of Bridgewater Associates, accounting for 1.19% of the overall portfolio.
Johnson & Johnson is also considered the safest play for long-term investors. The shares of Johnson & Johnson underperformed this year, but the company extended its dividend growth trend despite pandemic related problems. JNJ is a dividend king amid its dividend growth history of 58 years. The company looks sound financially amid expectations for $88 billion in fiscal 2020 revenue compared to $82 billion in the past year period.
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Disclosure: No position. 10 best large-cap stocks to buy according to Ray Dalio is originally published on Insider Monkey.