Jim Simons and Josh Resnick might not be familiar names to many investors, but both hedge fund managers have beaten the S&P 500 over the past three years. During that time, Simons’ Renaissance Technologies and Resnick’s Jericho Capital Asset Management delivered returns of 76% and 100%, respectively, topping the 68% total return of the broader market.
Both money managers are clearly doing something right, so investors could find it helpful to track their portfolios. For instance, Resnick started a position in Tesla (TSLA 2.54%) during the first quarter, and Simons added to his position in Alphabet (GOOG 0.72%) (GOOGL 0.48%).
Is it time to buy these growth stocks?
Tesla recently lost its leadership position in electric vehicle (EV) sales. The company captured 12.6% market share through the first five months of the year, while Chinese automaker BYD (BYDDY -2.29%) took the top spot with a 15.6% share. Tesla also missed second-quarter delivery estimates due to lockdowns and supply chain issues affecting its Gigafactory in Shanghai. Deliveries totaled 254,695 cars in the quarter, up 27% from the prior year, but down 18% from the prior quarter.
That certainly isn’t great news for Tesla, but BYD has multiple factories outside of lockdown zones in China, so it was able to maintain production throughout the quarter. Meanwhile, Tesla had to shutter its Shanghai factory for 22 days. That’s particularly significant because China is the world’s largest EV market by a wide margin. However, this isn’t a winner-take-all market, and Tesla investors still have good reason to be bullish.
In the latest earnings call, management expressed confidence in its ability to grow production by at least 50% this year, and CEO Elon Musk noted that demand was not a limiting factor.
Tesla has also posted stunning financial results over the past year. Revenue climbed 73% to $62.2 billion, operating margin hit an industry leading 15.5%, and free cash flow soared 188% to $6.9 billion. Looking ahead, Tesla stands to become even more efficient as it outfits vehicles with its 4680 battery cell and ramps up production at new factories in Texas and Germany.
However, many stakeholders see Tesla’s true value in artificial intelligence (AI) and robotics, and management has said full self-driving technology would eventually be the greatest source of profitability. With well over 2 million autopilot-enabled cars on the road, Tesla has access to more driving data than any other automaker. That makes the company a front-runner in the race to build an autonomous vehicle. In fact, Tesla has a robo-taxi slated for production in 2024.
Despite losing 43% of its value in the ongoing sell-off, Tesla is still worth more than the next nine automakers combined. And at 12.6 times sales, the stock certainly isn’t cheap. But Simons and Resnick both hold Tesla in their hedge funds — it’s the second-largest position in both portfolios. If you can handle volatility and your time horizon is at least five years, I think it’s worth buying this growth stock now.
Alphabet is a collection of many different businesses, though Google is the best known of the bunch. Google ranks as the third-most-valuable brand in the world, according to the brand-valuation consultancy Brand Finance.
It owes that brand authority to ultra-popular services like Google Search and YouTube, and Alphabet has used those content platforms to build an advertising empire. Last year, the company captured nearly $0.29 of every $1 spent on digital advertising, according to eMarketer.
Alphabet’s status as a juggernaut in the ad industry has fueled consistently solid financial results. Revenue climbed 37% to $270 billion in the past year, and the company generated $69 billion in free cash flow, up 36% from the prior year.
Investors should look for Alphabet to maintain that momentum. Its relentless testing and tweaking of search algorithms have made Google Search the gateway to the internet, and the company is working to reinforce that edge with AI. In the future, Google Search might be able to answer complex questions.
YouTube (including YouTube TV) is the second-most-popular streaming service as measured by viewing time, and the Google Play Store is the second-most-popular mobile app store based on consumer spending. As a whole, Alphabet’s arsenal of popular web properties should keep it at the forefront of digital advertising, an industry that will surpass $600 billion this year.
It is also investing aggressively in Google Cloud, especially in areas like data analytics, AI, and cybersecurity. That continued to pay off in the first quarter, with cloud revenue rising 44% to $5.8 billion. And the cloud industry is expected to grow by 16% per year to reach $1.6 trillion by 2030, according to Grand View Research. That leaves a long runway for growth, and Alphabet — as the third-largest cloud service provider — should be a big beneficiary of that trend.
So Simons’ decision to buy more Alphabet makes sense, and investors looking to add a blue chip tech company to their portfolios should strongly consider buying this growth stock.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Tesla. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), BYD, and Tesla. The Motley Fool has a disclosure policy.