The telecommunications equipment sector has had one of the sharpest recoveries, with the average stock in the group tripling from the nadir in 2008-09 to the peak in spring this year, while both the broader technology group and the S&P doubled during the same period. Since then, the group has been in corrective mode, like the rest of the market, due to concerns that the slowing economy will lead to more restrained capital spending from leading telecom service carriers such as AT&T Inc. (NYSE:T) and Sprint (NYSE:S).
The leading carriers are posting anemic low-single digit growth rates on their top-line revenue, and they are expected to focus on de-leveraging and improving cash flow generation going forward, which will negatively impact capital spending decisions, a major source of revenue for manufacturers of telecom equipment. Even then, the long-term outlook for the telecom equipment sector continues to be bullish due to the pace of technological change, and the need for telecom infrastructure development in emerging economies.
In this article, we identify telecom equipment stocks that are being accumulated and those being distributed by legendary or guru fund managers such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, based on our extensive database of the buying and selling activities of over 60+ such managers. Based on our research, we identified that guru funds are bearish on the group, cutting a net $1.08 billion from their prior $6.53 billion position in the group, selling $2.11 billion and buying $1.03 billion worth of stocks in the group. Furthermore, overall they are under-weight in the group by a factor of 0.8; that is taken together guru funds have invested 1.3% of their capital in the telecom equipment companies compared to the 1.5% weighting of the group in the overall market.
The hedge fund and mutual fund managers included in this select group include only high-profile names who, by virtue of their long-term market-beating returns, have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie.
The following are the telecommunications equipment sector picks that these guru fund managers are most bullish and bearish about (see table):
Guru Funds Bearish on Cisco Systems Inc. (NASDAQ:CSCO): CSCO is the worldwide leader in the manufacturing of IP-based networking and other products related to the communications and IT industry worldwide. Its products include switches, routers and other networking and communications hardware for corporate, education and government networks around the world. Guru funds cut $638 million from their $2.45 billion prior quarter position. Top sellers included Fairholme Capital Management LLC ($573 million), Fisher Asset Management LLC ($374 million) and Oakmark Funds/ Harris Associates LP ($277 million).
Guru Funds 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 $81 million from their $90 million prior quarter position in the company, and together they hold only 0.03% of the outstanding shares. Maverick Capital was the only significant seller, selling out of its entire $81 million position from the prior quarter.
Guru Funds Bearish 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 cut a net $27 million from their $38 million prior quarter position in the company, and together they hold only 0.18% of the outstanding shares. Top sellers included SAC Capital Advisors LP ($19 million) and Zweig-DiMenna Associates ($5 million).
Guru Funds Bearish on Nokia Corp. Ads (NYSE:NOK): Finland-based NOK is a worldwide leader in mobile communications. It is a leading supplier of mobile devices; a leading supplier of mobile, fixed and IP networks; and a provider of Internet and digital mapping, and navigation services worldwide. Guru funds cut a net $35 million from their $36 million prior quarter position in the company, and together they held only $1 million worth of the outstanding shares at the end of the June quarter. Snow Capital Management was the only significant seller, selling out of its entire $31 million position from the prior quarter.
Guru Funds Bearish on Powerwave Technologies Inc. (NASDAQ:PWAV): PWAV is a manufacturer of antennas, boosters, combiners, cabinets, shelter and filters for wireless telecom networks worldwide. Guru funds cut a net $5 million from their $9 million prior quarter position in the company. Driehaus Capital Management was the only significant seller, selling out of its entire $4 million position from the prior quarter.
Guru Funds Bearish on Juniper Networks Inc. (NYSE: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. They offer next-generation Internet backbone routers that offer service providers increased reliability, performance, scalability, interoperability and flexibility, and reduced complexity and cost compared to current alternatives. Guru funds cut a net $9 million from their $17 million prior quarter position in the company. Top sellers included Capital Growth Management LP ($10 million) and Driehaus Capital Management ($3 million).
Guru Funds Bearish on Ciena Corp. (NYSE:CIEN): CIEN is a designer of Ethernet transport and switching systems used in network infrastructure by telecom and cable service providers. Guru funds cut a net $15 million from their $21 million prior quarter position in the company. Top sellers included Zweig-DiMenna Associates ($10 million) and SAC Capital Advisors LP ($4 million).
Guru Funds Bullish on Adtran Inc. (NASDAQ:ADTN): ADTN is a leading global provider of networking and communications equipment, with a portfolio of more than 1,400 solutions for use in the last mile of today’s telecommunications networks. Its solutions enable voice, data, video, and Internet communications across fiber-optic, copper-based and wireless network infrastructures. Guru funds added a net $19 million to their $174 million prior quarter position in the company. Top holders included Royce & Associates LLC ($153 million) and Hussman Econometrics Advisors Inc. ($30 million), and the top buyer in the June quarter was Hussman Econometrics Advisors Inc. ($21 million).
Guru Funds Bullish on Finisar Corporation (NASDAQ:FNSR): FNSR is a provider of optical subsystems and components that are used to interconnect equipment in short-distance local area networks (LANs), storage area networks (SANs), longer distance metropolitan area networks (MANs), fiber-to-the-home networks, cable television networks, and wide area networks. Guru funds added a net $63 million to their $80 million prior quarter position in the company. The top buyer was Fisher Asset Management LLC, adding a new $61 million position in the company. Other top holders included Columbia Wagner Asset Management LLC ($61 million) and Royce & Associates LLC ($14 million).
Guru Funds 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. Guru funds added a net $11 million to their $9 million prior quarter position in the company. Top buyers included Fisher Asset Management LLC ($15 million) and SAC Capital Advisors LP ($3 million).
Guru Funds Neutral on Tekelec (NASDAQ:TKLC): TKLC manufactures network signaling, performance management and number portability systems for telecom service providers. Guru funds added $1 million to their $7 million prior quarter position in the company, and they hold 1.3% of the outstanding shares, far below the 2.3% average holding of guru funds for the group. Top holders included Royce & Associates LLC ($7 million) and SAC Capital Advisors LP ($1.4 million).
Guru Funds Bearish on Akamai Technologies Inc. (NASDAQ:AKAM): AKAM is a global provider of services that help enterprises and e-businesses improve the delivery of their content and applications over the Internet. Its services include dynamic content and application delivery, application performance technologies, traffic management, and online storage and load balancing. It offers content delivery network services and streaming media services in addition to private content delivery. Its solutions enable its customers to operate their web transaction anywhere anytime with cost-effective outsourced infrastructure, and to carry out predictable, scalable, and secure e-business at low costs. Guru funds cut a net $8 million from their $10 million prior quarter position in the company. Top sellers included SAC Capital Advisors LP ($4 million) and Balyasny Asset Management LLC ($4 million).
Guru Funds Bearish on Acme Packet Inc. (NASDAQ:APKT): APKT manufactures session border controllers, load balancers, routing proxies and multi-service security gateways. Its products are used in session delivery networks that enable delivery of next-generation voice, video and unified communications over IP networks. Guru funds cut a net $73 million from their $97 million prior quarter position in the company. Top sellers included Viking Global Investors LP ($68 million) and Driehaus Capital Management ($8 million).
Guru Funds Bearish on Equinix Inc. (NASDAQ:EQIX): EQIX provides network-neutral co-location, inter-connection and managed services to enterprises, content providers, financial services companies and network service providers. It operates International Business Exchange (IBX) data centers across 18 markets in North America, Europe and Asia-Pacific where customers directly interconnect with a networked ecosystem of partners and customers. Guru funds cut a net $121 million from their $469 million prior quarter position in the company. Top sellers included Lone Pine Capital LLC ($92 million), SAC Capital Advisors LP ($22 million), and Columbia Wagner Asset Management LLC ($8 million).
General Methodology and Background Information: The latest available institutional 13-F filings of over 60+ legendary or guru hedge fund and mutual fund managers were analyzed to determine their capital allocation from among 50+ different industry groupings, and to determine their favorite picks and pans in each group. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 60-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 in the article.
These legendary or guru fund managers number less than one percent of all funds and yet they control almost ten percent of the U.S. equity discretionary fund assets. 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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