3 Stocks You Can Love At New Highs

Are you worried about the Earnings Recession, or China, or when the Fed will raise interest rates next in a slow-growth economy?

Stop it! Instead, follow a few smart hedge fund managers who are unafraid to buy stocks at new highs.

I ran a stock screen this morning with these 5 criteria…

1. Recent All-Time Highs
2. Zacks Rank of #3 or Better
3. Zacks Growth Score of “B” or Higher
4. PEG Ratio
5. Strong Institutional Demand in Recent 13F Filings

The screen produced a few dozen names, but three stood out to me: Broadcom (NASDAQ:BRCM) (AVGO), Facebook (NASDAQ:FB), and Ulta Beauty (ULTA).

I own the first two, and oh how I wish I owned the third.

The video that accompanies this article has all the details of how each stock did on the screen criteria. Here I just want to focus on the institutional demand story for each.

Why Broadcom Is Must-Own at New Highs

Broadcom (AVGO) was a steal at $120 in Q1 and that’s what I kept telling my trader-members in my Follow The Money institutional portfolio. It was held back on fears about impacts to its business as a supplier of semiconductor-related solutions, like radio-frequency chips and various types of filters and amplifiers, to Apple (NASDAQ:AAPL).

But those impacts are small relative to its huge segment domination in enterprise connectivity. Broadcom builds the chips and other hardware for the 100 G buildout that corporations and data centers need for the high-speed information economy. And the last quarterly earnings report proved that the company is executing on all fronts, especially with increased sales and synergies due to the recent acquisition that changed the company name from Avago.

In Q1, the net accumulation of AVGO shares was significant. Much of this had to do with the acquisition of the old Broadcom (symbol BRCM) as shares were converted for large institutions like Vanguard, State Street, and BlackRock holding one or both.

A smaller fund, Maverick Capital, run by “Tiger Cub” Lee Ainslie, more than quadrupled its position in AVGO shares from 208,000 to over 860,000.

A move like this from a sub-$10 billion manager who has a long and successful track record told me one thing for sure: he and his team are not worried about the Fed, Europe, China, the economy, or how bad earnings and growth might be in a given sector. Instead, they are “heads down, picking stocks” for their clients who appreciate their 3 to 5-year view of picking winners in long-term trends.

Why Facebook is Must-Own at New Highs

This story can be summed up fairly easy: Facebook (FB) is must-own for all kinds and sizes of fund managers because it has access to potentially billions of customers who use its platform every day and it is making significant progress on monetizing those eyeballs and clicks with mobile advertising and other initiatives.

You could say that for hedge funds, owning Facebook is like owning AAPL was in the past 5 years: they can’t afford not to.

Could Facebook become “over-owned” by institutions just like happened to AAPL shares in 2013 and this year? Sure it can, and it will. But I don’t think that window is near yet. Maybe 1 to 2 years from now if and when the growth rate slows down.

Why Ulta Beauty is Must-Own at New Highs

Ulta Beauty (ULTA) just reported another blow-out quarter of growth on Thursday and the stock has responded with another big gap up to new all-time highs. I last wrote about ULTA in March after they did the same thing and the stock soared from $160 to $190.

Here was my Bull of the Day article on Ulta Beauty.

In the video that accompanies this article, I provide highlights on “the beautiful quarter” and notes on the conference call where CEO Mary Dillon explained how their Loyalty Rewards program is becoming the model to emulate for everyone else.

I also describe one fund manager who has nailed the ULTA trade better than anyone in the past few years, Steve Mandel of Lone Pine Capital.

Mandel owned 3.4 million shares at the end of 2014 with an average cost basis probably pretty close to $100. Then he proceeded to take some profits by selling about 1 million in the first half of 2015 as the stock rose to new highs above $160.

But in the second half of 2015, as shares went sideways-to-higher between $150 and $190, he added back 1.2 million shares. In the first quarter of this year, during the stock market correction, Lone Pine only sold about 200K shares, holding on to over 3.3 million.

All in all, I’m sure Steve Mandel is very happy being able to ride the two back-to-back earnings-drivensurges in the stock from $160 to $230+ this year with over 3 million shares.

It must certainly cushion the blow his funds have suffered owning a sizable position in the beleaguered Valeant Pharmaceuticals (NYSE:VRX).

Buying ULTA at ATH

Would I recommend buying ULTA shares here at all-time highs in the $230’s?

For long-term investors who understand the growth opportunity, yes I would say it’s okay to nibble here. And then you buy more on any pullbacks into the $190 to $210 zone.

As an example of where the investment banks stand, Jefferies analysts begrudgingly raised their price target from $180 to $215 after the quarter, while Baird’s team boosted their PT from $225 to $255.

Bottom line: Buying new highs in a solid, secular growth story is almost always a good play. Just ask Steve Mandel of Lone Pine about his beautiful buys of Ulta at every beautiful new high.

Disclosure: I own AVGO and FB.

Kevin Cook is a Senior Stock Strategist at Zacks Investment Research where he runs the FTM Institutional Portfolio.