By Matt Doiron
The most complete picture of what a particular hedge fund or other major investor likes in the stock market comes when the fund files its quarterly 13F, disclosing many of its long equity positions. One technique we use to turn this raw data into useful information for investors is by developing investment strategies - for example, the most popular small-cap stocks among hedge funds tend to strongly outperform the broader market by more than 15 percentage points per year between 1999 and 2009 (see the details here). We also like to go through individual filings for the stocks that fund managers like, either overall or in particular sectors. Here are the five stocks in the technology sector that billionaire Ken Fisher's Fisher Asset Management (see our database of his stock picks over time) reported the largest position by market value in on its most recent 13F:
Fisher's top pick in the technology sector was business software developer Oracle Corporation (ORCL), as the fund owned almost 20 million shares of the company. In the fiscal quarter ending in November 2012, Oracle experienced only a 3% increase in revenue compared to the same period in the previous fiscal year but higher margins helped carry earnings 18% higher. Oracle won a place on our list of hedge funds' favorite tech stocks for the third quarter of 2012 (find more tech stocks hedge funds were crazy about). The trailing P/E is 16 and so it could be a candidate for value status if it keeps up its growth.
Cisco Systems, Inc. (CSCO) was another of Fisher's top tech picks, even after the fund slightly trimmed its stake in the networking and communications company. Cisco is another stock whose earnings multiples place it in potential value territory, with trailing and forward P/Es of 14 and 10 respectively. The stock also pays a dividend yield of 2.7% at current prices and dividend levels. Cisco's most recent quarter was similar to Oracle's: modest improvements on the top line, but expanding margins with earnings actually being up 18% from a year earlier at Cisco as well.
Fisher's stake in International Business Machines Corp. (IBM) stayed about constant at 3.3 million shares. IBM has actually been performing surprisingly well despite the challenges in the current PC landscape, with earnings up modestly last quarter compared to the fourth quarter of 2011 and sales about flat. However, some market watchers do not think that IBM can sustain its current levels of net income without a stable top line. The market cap of over $220 billion represents a trailing P/E multiple of 14, with expectations of continued earnings growth implying a forward earnings multiple of 11.
The fund also liked Taiwan Semiconductor Mfg. Co. Ltd. (TSM), which as the name implies is a manufacturer of semiconductor devices. Sales and net income growth were both above 20% in Q4 2012 compared to the same quarter in the previous year, with earnings growth actually coming in at 32%. The market expects this growth rate to slow dramatically, with the stock only trading at 17 times trailing earnings. As a result we think that Taiwan Semiconductor might be worth investigating as a potential "growth at a reasonable price" stock.
Qualcomm, Inc. (QCOM) rounded out Fisher's favorite tech stocks. The fund reported a position of 9.1 million shares in the $114 billion market cap communications products company. Qualcomm's trailing earnings multiple of 18 makes it the most expensive stock on this list on a P/E basis, but its recent quarterly results have been very strong. Earnings were up 36% in the first quarter of the current fiscal year (the quarter which ended in December 2012) and this primarily came from higher revenue rather than increases in margins. As a result we'd recommend that investors research Qualcomm further as well.