Investor’s Business Daily regularly publishes “New Buys of Top-Performing Stock Funds,” identifying equities that top performing stock funds bought in large quantities. Usually, the largest funds ultimately determine stock performance. The best funds can usually obtain much more pertinent information about firms and sectors than retail investors. Given these points, paying a great deal of attention to and sometimes emulating mutual fund favorite stocks is worthwhile for retail investors.
Also noteworthy is that buying names that have been rallying can also be quite profitable. (These equities are often called “hot stocks” by business news outlets). Indeed, if you manage to buy a stock in the early stages of a huge rally, you can make a great deal of money. Here are three top mutual fund favorite stocks that investors should consider buying now.
Amazon (AMZN)
In the third quarter, 54 top funds acquired a huge $16.19 billion of Amazon (NASDAQ:AMZN) stock. So there’s no doubt that the cloud and e-commerce giant was one of the top funds’ favorite stocks in Q3.
I believe that the funds’ tremendous faith in AMZN stock is justified. That’s because Amazon’s e-commerce unit should get a boost from the strength that American consumers showed during the holiday season, while the large amount of revenue should lift its cloud business, likely generated from selling AI tools and systems.
Moreover, the company was slated to start showing ads on its Prime Video service on Jan. 29. That decision will increase the firm’s top line by $1.3 billion this year and $2.3 billion in 2025, investment bank MoffettNathanson estimated. Moreover, most of that money should flow directly to the company’s bottom line since showing ads is not typically costly.
Finally, as I’ve pointed out in past columns, I believe the company is in the early stages of disrupting the U.S. pharmaceutical delivery system.
ServiceNow (NOW)
In Q3, 25 stock funds bought $103 million of ServiceNow (NASDAQ:NOW) stock, making it one of the top funds’ favorite stocks. The funds’ faith in NOW was justified recently, as the maker of IT automation software reported stellar fourth-quarter results on Jan. 24.
Specifically, the firm’s top line jumped 26% last quarter versus the same period a year earlier to $2.44 billion. In comparison, its net cash provided by operating activities soared 66% year-over-year to $1.6 billion. Also noteworthy is that the firm’s customer base increased by 15% year-over-year in Q4, while the renewal rate of its current customers came in at an impressive 99%.
NOW noted that it’s generating great revenue by helping other companies implement AI tools.
Bank of America responded to the company’s results by hiking its share price target to $900 from $800. The bank noted that the company obtained multiple deals due to its AI prowess, while its backlog is impressive and diverse.
SAP (SAP)
SAP (NYSE:SAP) was another big bet by the best stock funds, and that was an excellent call. In Q3, 31 funds bought $709 million of the shares of SAP, a Germany-based company that provides enterprise resource planning tools.
And SAP has soared over 30% since its September lows, hitting record highs.
The market appeared impressed by the firm’s plan to lay off about 8,000 employees to increase its investments in AI projects.
However, aspects of the firm’s Q4 results and guidance suggest it’s already on the right track.
Specifically, its “cloud revenue” jumped 20% last quarter versus the same period a year earlier, while its “cloud backlog” climbed 27% year-over-year. The latter increase represented a record.
Also noteworthy is that its operating profit, excluding certain items, jumped 9% YOY, while it expects its “cloud revenue growth” to accelerate in 2024.
The company’s strong, profitable cloud business now generates 44% of its revenue, leaving it well-positioned to deliver impressive top-and-bottom line growth going forward.
Also impressively, Nvidia (NASDAQ:NVDA) has decided to utilize SAP’s cloud product, RISE, while Microsoft is integrating SAP’s SuccessFactors, a human capital management tool, with MSFT’s AI-powered offerings.
Over the longer term, these partnerships should entice many other firms to utilize SAP’s products.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.