I like to closely monitor the investment decisions of several institutional investors to uncover investment opportunities. However, there is no point in following an investor if he has a substantial portfolio turnover on a quarterly/annual basis as the investor might have already closed his position in the stock by the time you might get access to his holdings in the previous quarter. One institutional investor I closely follow is the Brown Investment Advisory Incorporated (BIA). It manages several mutual funds, among them Brown Advisory Growth Equity Institutional (BIAGX) is my favorite due to its low turnover and five star rating by Morningstar.
The firm filed its 13F for the 3rd quarter in November and reported several new buys in the technology sector. In this article, I will present 5 large investments made by the Brown Investment Advisory in the tech sector and determine if further detailed analysis is warranted based on preliminary valuation.
NetApp Inc (NASDAQ:NTAP): This Sunnyvale, CA, based company is a provider of storage and data management solutions. It has a market cap of $12.96 billion. BIA purchased approximately 2.1 million shares (an increase of 59%) at an estimated average price of $42.26. The company currently trades at $36.13. Analysts expect it to grow at an annual rate of 16% during the next five years. Based on the mean 2012 EPS estimate of $2.21, applying my preliminary P/E estimate of 17, my price target for NTAP is $37.57. Although one can buy NTAP presumably at a cheaper price than that paid by BIA, I would not look to open a position in NTAP at these levels.
Citrix Systems, Inc (NASDAQ:CTXS): BIA’s stake in CTXS increased by 31% in the last quarter. The firm purchased 2.35 million shares at an estimated average price of $63.79. At its current price of $63.38, one can acquire CTXS shares at a price similar to that paid by BIA. The company is expected to grow its earnings at an annual rate of 18% during the next 5 years compared with the 11.5% average annual growth rate of the past 5 years. Applying a P/E of 34.6 to FY 2012 EPS estimate of 2.33, my price target for CTXS is $81 a share. At current levels, CTXS appears attractive and merits a detailed analysis.
Google (NASDAQ:GOOG): Google had a good run during the last five years with a historical growth rate of 25%. In this time period, the stock was up 30% compared with the 12% decline in the S&P 500 (NYSEARCA:SPY) index. Going forward, analysts expect the company to grow its earnings at an annual rate of 19%. BIA added approximately 57,000 shares of GOOG during the last quarter at an average price of $550. The stock has since appreciated to $630, but continues to be undervalued in my opinion. Applying a P/E of 21 (significantly below its five-year average of 35), my price target for GOOG is $802 a share by December 2012. Although I would prefer opening a position in GOOG under $600, GOOG does warrant a detailed analysis at these levels.
Salesforce.com, Inc (NYSE:CRM): Of all the purchases made by BIA, this is one purchase that I certainly disagree with. CRM provides enterprise cloud computing applications. The company has reported a loss during the last two quarters and is projected to earn $0.42 a share in 2012. CRM has a projected long-term growth rate of 25%, which is not too shabby, but that does not justify the high multiples bestowed by the Street. BIA upped its stake in CRM by 41% at an estimated price of $134.31 and now owns 1.25 million shares of CRM. The stock currently trades at $104 and is headed south in my opinion. By being very liberal in my estimates and preliminary valuation, I determined a price target of $100 a share (fair value closer to $60 seems reasonable). I would take this company for further analysis to determine if shorting the stock makes sense.
Qualcomm (NASDAQ:QCOM): With a market cap of $91 billion, QCOM is one of the bigger companies on this list. The company is a major player in the CDMA technology space and has outperformed the broader markets this year by appreciating 9% in price. Along with Citrix, it is the only other company projected to grow at a faster pace during the next five years (15.55%) compared with the preceding five years (11.81%). BIA bought 808,000 shares at an average price of $52.19 representing a change of 13% in the total number of QCOM shares it owns. My target price of $72 a share implies a gain of more than 25% from current levels, making it the most attractive name of this list. The target price is obtained by applying a multiple of 20 to average analyst FY 2012 EPS estimate of 3.64.
In summary, based on my preliminary analysis, Citrix Systems, Google and Qualcomm appear undervalued while Saleforce.com possibly is overvalued. NetApp is fairly priced at current levels. I plan on adding QCOM, CTXS and GOOG to my watch list for a detailed analysis for possible investment.
All company specific data sourced from Yahoo Finance and Morningstar.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Kindly use this article for information purposes only. Please consult your investment advisor before making any investment decision.