Inspiration from the Ivy League: 3 Stocks Harvard Money Managers Believe in

Today we focus on Harvard Management Company (“HMC”) and discuss three Harvard endowment actions. HMC manages Harvard University’s massive endowment, valued at well over $50 billion for fiscal year 2023. As a result, many people on Wall Street pay attention to the investment decisions made by the fund.

HMC’s latest filings with the SEC reveal a concentrated portfolio of twelve securities. The company’s main holdings include Alphabet (NASDAQ:GOOGLE) (NASDAQ:GOOG), Metaplatforms (NASDAQ:META), Invesco QQQ Trust (NASDAQ:QQQ), Light and wonder (NASDAQ:LNW), And Nvidia (NASDAQ:NVDA). Notably, the top three stocks represent 78% of its invested assets. With this information, here are three Harvard endowment actions that deserve your attention in June.

Key Harvard Endowment Actions: Alphabet (GOOGL, GOOG)

First up on our list of Harvard endowment stocks is Alphabet, the parent company of Google, YouTube, and Google Cloud. During the first quarter of 2024, Harvard Management Company increased its stake in Alphabet, particularly Class A shares (GOOGLE) by 27.6% thanks to two purchases, a decision likely supported by Alphabet’s strong financial performance.

The tech giant beat analysts’ expectations in the first quarter, posting a 15% rise in revenue to $80.5 billion. This growth was propelled in part by a 13% increase in Google’s advertising revenue, totaling $61.7 billion. Additionally, a 28% increase in cloud computing revenue to $9.6 billion thanks to advances in AI technology helped. Alphabet announced its first-ever quarterly dividend of 20 cents per share and a $70 billion buyback program. Both measures were well received by stakeholders.

Strategic projects, such as a partnership with augmented reality startup Magic Leap and more than 1,000 new cloud product offerings, underscore Alphabet’s commitment to innovation. At the same time, Alphabet is investing heavily in generative AI, notably through its Google Cloud and Search segments. The company has introduced generative AI features in Google Search, allowing it to answer more complex queries and improve user experience. Google has rolled out “AI Previews” in search in the US and UK, focusing on complex queries where generative AI can add value.

Year to date, GOOGL stock has gained nearly 24% and currently trades at approximately 23 times forward earnings and 7 times trailing sales. Analysts are forecasting further upside, setting a 12-month price target of $195, a potential 13% increase from current levels. Aside from the growth prospects, the stock also comes with a modest dividend yield of 0.47%.

Light and Wonder (LNW)

We continue our discussion of Harvard’s endowment actions with the game developer Light and wonder (NASDAQ:LNW). The company designs, manufactures and distributes physical gaming machines such as slot machines and electronic table games for casinos and lotteries. LNW also has a digital games segment, SciPlay, which publishes mobile and web games.

On May 8, Light & Wonder reported strong results for the first quarter of 2024. Consolidated revenue increased 13% on a year-over-year basis to $756 million. Diluted earnings per share (“EPS”) were 88 cents, compared to 23 cents for the prior-year quarter. Management also expressed confidence in its ability to generate sustainable growth and achieve its target of $1.4 billion in revenue by 2025. Investors noted that key growth drivers include the launch new games, expansion into adjacent markets and continued momentum in its digital businesses.

While Light & Wonder presents an attractive investment opportunity with consistent revenue growth, diversified revenue streams, and strong financial health, potential investors should also consider the industry’s volatility and reliance on consumer spending. Naturally, balancing these pros and cons can help long-term investors make an informed decision about including Light & Wonder in their investment portfolio.

Year to date (YTD), LNW stock is up over 16% as shares trade at 24.83 times forward earnings and 2.88 times sales. Meanwhile, LNW’s 12-month median price prediction stands at $113.0, suggesting over 18% upside potential from current levels.

Rocket Lab United States (RKLB)

The final company among our Harvard endowment stocks is Rocket Lab United States (NASDAQ:RKLB). This pioneering space company specializes in launch services and space systems solutions for commercial, aerospace and government customers. With a robust product line including electronic and photonic platforms and ambitious plans for neutron rocket, RKLB stock provides investors exposure to the growing aerospace and defense (A&D) industry fast.

Rocket Lab reported total revenue of $92.77 million for the first quarter of 2024, representing a significant growth of 68.99% compared to the same quarter of the previous year. It’s worth noting that despite the strong revenue growth, Rocket Lab USA is currently operating at a loss.

The A&D sector is characterized by high entry barriers, significant capital requirements and long development cycles. Wall Street points out that the industry is experiencing a renaissance, driven by technological advancements, increased demand for satellite launches and growing interest in space exploration. Meanwhile, Rocket Lab has secured a strong order backlog of over $1 billion, providing significant visibility into future growth. The company has also formed strategic partnerships and secured government contracts, which not only provide it with stable revenues, but also strengthen its credibility and competitive position in the sector. Recently, the company announced that it had selected subcontractors to support the development of a satellite constellation for the Space Development Agency (“SDA”).

Since January, RKLB stock has risen nearly 22%. It should be noted, however, that the shares change hands at a relatively high valuation of 7.51 times sales. Finally, the 12-month median price prediction is $8.0, suggesting an 83% upside potential based on current prices.

As of publication, Tezcan Gecgil held long and short positions in NVDA. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publishing Guidelines.