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Morning Brief: Credit Suisse Raises Targets on Three FANG Stocks

Hedge fund favorites Facebook, Amazon, and Google parent Alphabet got a boost from the investment bank on Wednesday.

  • By Stephen Taub

Credit Suisse raised its price target on three of the four so-called FANG stocks. They were also the three most widely held hedge fund stocks at the end of the second quarter, according to Goldman Sachs. The changes come several weeks before each of the companies report quarterly results.

For example, the investment bank lifted its target on social media pioneer Facebook, the most widely held stock among hedge funds, from $190 to $235, and raised its estimates for the company. In a note to clients, Credit Suisse points out that despite some recent controversies over advertising-related issues, the company nonetheless has reported two straight quarters of ad price growth acceleration. The price target is based on its revised discounted cash flow model. Shares of Facebook rose 0.67 percent on Wednesday, to $172.74.

Credit Suisse also raised its price target on Amazon.com — the second most popular hedge fund stock — from $1,100 to $1,350 and raised its earnings estimates. One major reason for its excitement is the e-commerce giant’s recent acquisition of Whole Foods and how the company plans to integrate it with Amazon Prime. The bank says in a note that it finds just 50 percent overlap of Whole Foods’ existing store locations in the U.S. with Prime Now delivery zones.

“This leads us to conclude that Amazon can over the medium term expand Prime Now’s presence by up to 50 percent into those cities where the population density matches existing regions,” Credit Suisse adds. Shares of Amazon.com rose 0.79 percent, to close at $995.

Finally, Credit Suisse raised its price target on Alphabet’s Class A shares, also from $1,100 to $1,350, and raised its estimates. “Our conversations with advertisers suggest minimal search budget growth deceleration coupled with potentially accelerating spend on YouTube due to multiple factors,” the bank tells clients in a note. Shares of the A class of Google’s parent rose 1.81 percent, to close at $1,005.65.

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Shares of hedge fund favorite Snap surged 11.44 percent, to close at $15.98, after Credit Suisse raised its price target from $17 to $20 and lifted its estimates for the social media company.

“While we concede that it has taken longer than anticipated, we submit that Snap is taking the necessary steps in the background to reduce friction against incremental ad budget allocations,” the bank states in a note to clients. Snap went public in March at $17 per share, so the stock is still underwater. As of the end of the second quarter, Stephen Mandel Jr.’s Lone Pine Capital held 7.6 million shares, while Balyasny Asset Management owned three million shares. Glade Brook Capital Management, which invested in the company when it was private, also owns a stake in the public shares.

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The average hedge fund rose 0.67 percent in September and 2.32 percent in the third quarter, according to eVestment. As a result, hedge funds are now up 5.92 percent for the year. More significantly, more than 75 percent of the funds in eVestment’s universe are in the black this year, with the average profitable fund up more than 10 percent. However, eVestment says the largest funds are faring worse than the average fund. In fact, the ten largest hedge funds are up, on average, by just 2.80 percent this year. Funds under $250 million, on the other hand, are up 6.21 percent.

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Parag Shah, who has been with Bridgewater Associates since 2002, has left the world’s largest hedge fund firm, according to the Wall Street Journal. He was most recently head of marketing.

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