Leading hedge fund and mutual fund managers that have a long-term track record of generating high market-beating returns are bullish on the telecommunications equipment group, adding a net $809 million (including cutting $1.4 billion and adding $2.2 billion) to their $8.1 billion prior quarter position in the group. Overall, they are under-weight the group by a factor of 1.2. That is, taken together, the 70+ high alpha funds have invested 1.9% of their assets in the group, less than the 2.2% weighting of the group in the overall market. However, five of these guru funds have invested two and a half times that or over 5% in the telecommunications equipment group. The following are their top picks in the group:
Gurus Bullish on Alcatel-Lucent ADS (ALU): ALU, the telecommunications giant, is the result of a 2006 merger between France-based Alcatel and U.S.-based Lucent Technologies. It operates in over 130 countries worldwide, and is a leading provider of telecommunications equipment and services to fixed line, wireless, and internet service providers. It is also the world leader in ADSL1 equipment. Guru funds are bullish on ALU as they bought $38 million and did not sell any of ALU stock during the quarter. Funds that bought ALU included Driehaus Capital Management ($3 million) that also is concentrated in the telecommunications equipment group, SAC Capital Advisors LP ($27 million) and Zweig-DiMenna Associates ($8 million).
We agree with the gurus and first issued a buy on ALU in our coverage of Thursday’s biggest losers, arguing that while concerns over the economy and carrier spending are valid, ALU may still be the best value in the group, and that the stock has firm support in the $3.50s with limited downside protection while the upside is high as the company completes its turnaround. For our detailed analysis of the current investment potential of ALU, please click on the above link to our prior article.
Gurus Bullish on Juniper Networks Inc. (JNPR): JNPR provides secure network infrastructure products and services that enable ISPs and telecommunications service providers to deploy services and applications, and meet the demands resulting from the rapid growth of the Internet. It offers next-generation Internet backbone routers that offer service providers increased reliability, performance, scalability, interoperability and flexibility, and reduced complexity and cost compared with current alternatives. Guru funds added $26 million and did not sell any of JNPR stock during the quarter; however, together they still hold only 0.2% of the shares outstanding, which is indicative at least of their bearishness coming into the quarter. Funds that bought JNPR during the quarter include Capital Growth Management LP ($19 million), SAC Capital Advisors LP ($ 4 million) and Driehaus Capital Management ($2.5 million). We reiterate our earlier sell on JNPR that we issued after market-close on Wednesday. The stock has fallen another ten percent since we made that call, and we continue to believe that while JNPR shares may look attractive at first glance after the recent steep fall, the company faces a litany of problems that should keep a lid on the stock price in the short term. For our detailed analysis of the current investment potential of JNPR, please click on the above link to our prior article.
Gurus Bullish on Cisco Systems Inc. (CSCO): CSCO is the worldwide leader in manufacturing networking gear, including switches, routers, and other networking and communications hardware for business and home applications. It provides the broadest line of solutions for transporting data, voice and video within buildings, across campuses, or around the world. Guru funds are bullish on CSCO as they added a net $655 million to their $2 billion prior quarter holdings, and together they hold an outsized 3.2% of the outstanding shares of CSCO. Funds that have a large holding in CSCO stock include Fairholme Capital Management LLC adding a new position during the quarter ($614 million), Fisher Asset Management LLC ($404 million), Oakmark Funds/ Harris Associates LP ($350 million), First Eagle Investment Management LLC ($301 million), Legg Mason Capital Management ($289 million), Yacktman Fund ($189 million), and Platinum Investment Management Ltd. ($155 million).
We reiterate our earlier buy on CSCO that we issued three weeks ago (for our detailed analysis, please click on the link to our prior article), and continue to believe that it is a great buy at $15 for the value investor with a long-term horizon seeking to buy a dividend-yielding and high-cash-generating technology leader.
Gurus Bearish on Finisar Corporation (FNSR): FNSR is a provider of optical subsystems and network test and monitoring systems, which enable high-speed data communications over local area networks (LANs), storage area networks (WANs), and metropolitan area networks (MANs). Guru funds are bearish on FNSR as they unloaded $111 million from their $233 million prior quarter position in the company. Major selling funds included Maverick Capital ($106 million) and Driehaus Capital Management ($9 million).
The stock has fallen 65% since the $46 peak in February due to weakness in the optical sector and also poor quarterly results. Specifically, it missed revenue estimates and reported in-line earnings for the April 2011 quarter, and it guided down sharply both revenue and earnings for the July 2011 quarter. The stock trades at a forward 11 P/E. Earnings are projected to drop steeply to 93cents in the current April 2012 fiscal year from $1.55 the prior year, and are projected to rise to $1.43 in April 2013 fiscal year.
Gurus Bearish on Ericsson LM Telephone Co. (ERIC): ERIC is a Swedish manufacturer of wireless and fixed-line telecommunications networks and handsets. It is a total solutions supplier for all customer segments: network operators and service providers, enterprises and consumers. Guru funds cut a net $6 million from their $113 million prior quarter position in the company, and together they hold 0.2% of the stock, which is not surprising for a foreign company as the majority of ERIC stock is probably held by European funds. Guru funds with major positions in ERIC stock include Maverick Capital ($96 million), Fisher Asset Management LLC ($7 million) and Al Frank Asset Management ($4 million).
Gurus Bullish on Qualcomm Inc. (QCOM): QCOM designs CDMA-based power management ICs and system software used in wireless handsets, modem cards, and networks. QCOM trades at forward 15 P/E, in the bottom one-third of its historic P/E range, while earnings are projected to increase at 20% compounded growth rate from $2.46 in 2010, to $3.53 in 2012. Guru funds are bullish on QCOM, adding a net $410 million to their $1.2 billion prior quarter position in the company. Gurus with major buys of QCOM during the quarter include Fisher Asset Management LLC ($265 million), Lone Pine Capital LLC ($207 million), Viking Global Investors LP ($78 million), Hussman Econometrics Advisors Inc. ($47 million) and Maverick Capital ($37 million). Gurus Bullish on JDS Uniphase Corp. (JDSU): JDSU is a provider of communications test and measurement solutions, and optical products to telecommunications service providers, cable operators, and network equipment manufacturers. It trades at 11-12 forward P/E, in the bottom one-third of its historic P/E range. Meanwhile, earnings are projected to explode at a 66% compounded growth rate from 42cents in 2010 to $1.11 in 2012, thus making it an attractive buy at these levels as it trades almost 60% below the $29 highs in February. It would seem that guru funds would agree with us as while they hold only 0.4% of the outstanding shares of JDSU versus an average of 1.9% for the telecommunications equipment group. Indicative perhaps of their prior bearishness on the company, guru funds in the March quarter added $9 million to their $8 million prior quarter position in the company. Major holders of JDSU include Driehaus Capital Management ($7 million), RS Investment Management ($7 million) and SAC Capital Advisors LP ($3 million). Gurus Bullish on Riverbed Technology Inc. (RVBD): RVBD provides products and services that improve applications and accessibility of data over wide area networks (WANs). Their WAN optimization solutions liberate businesses from common IT constraints by increasing application performance, enabling consolidation, and providing enterprise-wide network and application visibility, all while eliminating the need to increase bandwidth, storage or servers. Guru funds added a net $10 million to their $20 million prior quarter position in the company. Buying funds included SAC Capital Advisors LP ($9 million) and Balyasny Asset Management LLC ($2 million); also, RS Investment Management owns $10 million worth of RVBD stock, and Driehaus Capital Management owns $7 million of RVBD stock.
We first issued a buy on RVBD in our coverage of the week’s losers for the week ending Jul
y 25. In it, we highlighted the rationale for our belief in its long-term story and potential, and indicated that we would be buyers in the $28-$30 range. With the stock closing yesterday slightly below $28, we believe the reward/risk potential is favorable now and we would buy it here in stages, so as to take advantage of any further weakness of price. For our detailed analysis of the investment potential of RVBD, please click on the above link to our prior article.
Gurus Bullish on Ciena Corp. (CIEN): CIEN is a designer of Ethernet transport and switching systems used in network infrastructure by telecom and cable service providers. Guru funds are bullish on CIEN and they added $31 million and did not sell any stock during the quarter, resulting in their holding $46 million of CIEN stock or 2.4% of the outstanding shares. Its shares were down last week in sympathy with JNPR's steep fall, as some of JNPR's woes in terms of the weak economy, weak enterprise and government spending, and weak telecom spending are applicable to the entire industry, including CIEN.
(Click chart to enlarge)
General Methodology and Background Information: The
latest available institutional 13-F filings of 70+ high alpha or guru funds were analyzed to determine their capital allocation from among 50+ different industry groupings. These were then analyzed to determine which guru funds were over-concentrated in specific industry groups, relative to the weighting of the overall market in that group. Then the holdings of those gurus that were over-concentrated in a specific industry grouping were analyzed to determine what specific stocks they held, bought or sold in significant amounts during the quarter as an indication of their bullishness or bearishness about those stocks.
The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds' best picks. Please note that each of the gurus has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 70-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles, many of which can be accessed by clicking on the hyperlinks referencing them in the above Table and article. These high alpha or guru funds number less than 100 or less than one percent of all funds and they control almost ten percent of the U.S. equity discretionary fund assets.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.