The world's largest funds or mega funds, managing between $100 billion and over a trillion dollars, such as Fidelity Investments, Goldman Sachs, and Vanguard Group, together control almost a third of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets. Individually, and collectively, they pack enough firepower to move stocks based on their trading activities. In this article, we examine based on our research of their latest available Q3 institutional 13-F filings stocks in the telecom equipment group, including wireless equipment, that they are most bullish and bearish about.
Most of the information is based on the latest available Q3 filings, but when Q4 filings are available, as in the case of a few of the 30 to 40 mega funds that have filed Q4's to-date, (including Vanguard Group, Bank of New York Mellon, Eaton Vance, and MFS Investment Management, that we have recently analyzed), we have instead used the more recent Q4 data for those funds. Taken together, these mega managers are bullish on the telecom and wireless equipment group, adding $176 million in Q3/Q4 to their $106.40 billion prior quarter position.
The following are the major telecom and wireless equipment companies that these mega fund managers are most bullish about (see Table):
Nokia Corp. Ads (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. Mega funds added a net $23 million to their $909 million prior quarter position, and taken together mega funds hold 5.0% of the outstanding shares, significantly lower than their 30.4% weighting in the group. This is understandable as NOK being Europe-based most likely has a significant number of Europe and Asia-based institutions holding company stock. The top buyer was Dodge & Cox ($71 million), and the top holders were Dodge & Cox ($414 million) and Capital Research Global Investors ($159 million).
NOK, the world's market share leader in mobile phones, has been steadily losing ground due to its failure to capture a proportionate share in smartphones, a market dominated by Apple's (AAPL) iPhone and Google's (GOOG) Android-based phones. The stock price has followed suit, off by almost 90% from its highs in 2007, which at its size amounts to a colossal loss of over $130 billion in market valuation. The stock trades at a discount at 12-13 forward P/E and 1.2 P/B compared to averages of 39.1 and 3.3 for its peers in the wireless equipment group. However, the company continues to face pressure, including going forward from cheap Android-based phones that are expected to flood the global market, and the discounted valuation may not be as good as it looks.
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. 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. Mega funds added a net $96 million in Q3 to their $5.72 billion prior quarter position, and taken together mega funds hold 48.1% of the outstanding shares, significantly higher than their 30.4% weighting in the sector. The top buyer was T Rowe Price ($438 million), and the top holder was also T Rowe Price ($1.60 billion).
JNPR's latest Q4 earnings report that came out two weeks ago has been a bellwether to the downside for the networking group, as its weak guidance for Q1 (11c-14c v/s 26c estimate) sparked fears of a broad-based slowdown. Its shares currently trade at 18 forward P/E and 1.7 P/B compared to averages of 39.1 and 3.3 for its peers in the wireless equipment group.
Qualcomm Inc. (QCOM): QCOM is a designer of CDMA-based, RF and power management ICs for system software used in wireless handsets, modem cards and networks. Mega funds added a net $1.27 billion in Q3 to their $37.5 billion prior quarter position, and together they hold 37.6% of the outstanding shares, greater than their 30.4% weighting in the group. The top mega fund buyers are Goldman Sachs ($1.29 billion) and BNY Mellon ($398 million), and the top holders are Fidelity Investments ($4.14 billion) and Vanguard Group ($4.12 billion).
QCOM released an outstanding Q4 report just over a week ago, beating revenue ($4.68 billion v/s $4.58 billion) and earnings (97c v/s 90c) estimates, and guiding next quarter revenues and earnings higher; the stock has broken out of a long-term consolidation pattern and is currently trading at almost twelve-year highs at 14-15 forward P/E and 3.8 P/B compared to averages of 39.1 and 3.3 for its peers in the wireless equipment group.
Cisco Systems Inc. (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. Mega funds added a net $29 million in Q3 to their $31.1 billion prior quarter position, and together they hold 29.1% of the outstanding shares. The top buyers were Fidelity Investments ($375 million) and JPMorgan Chase & Co. ($375 million), and top holders were Vanguard Group ($4.33 billion) and State Street Corp. ($4.18 billion).
CSCO released its FQ2 (January) report on Wednesday, beating revenue and earnings estimates; the stock, however, has slightly weakened since the report over concerns about its flattish guidance for FQ3. The stock currently trades at 10 forward P/E and 2.3 P/B compared to averages of 24.9 and 2.4 for its peers in the computer networking group. Also, it yields an attractive 1.6% dividend yield, almost non-existent among its peers in the group.
The following are the major telecom and wireless equipment companies that these mega fund managers are most bearish about (see Table):
- Alcatel-Lucent ADS (ALU), the French telecommunications giant, that is a leading provider of telecommunications equipment and services to fixed line, wireless and Internet service providers, in which mega funds cut $108 million from their $541 million prior quarter position;
- Akamai Technologies Inc. (AKAM), a global provider of services that help enterprises and e-businesses improve the delivery of their content and applications over the Internet, in which mega funds cut $288 million from their $2.41 billion prior quarter position;
- Wide-area network optimization solutions provider Riverbed Technology Inc. (RVBD), in which mega funds cut $10 million from their $2.00 billion prior quarter position;
- Swedish manufacturer of wireless and fixed-line telecom networks and handsets LM Ericsson (ERIC), in which mega funds cut $285 million from its $533 million prior quarter position;
- Brocade Communications Systems Inc. (BRCD), an innovative network solutions provider that helps organizations worldwide transition smoothly to a virtualized world where applications are information can reside anywhere, by providing data center networking and storage area networking solutions, in which mega funds cut $58 million from their $633 million prior quarter position; and
- Acme Packet Inc. (APKT), a manufacturer of session border controllers, load balancers, routing proxies and multi-service security gateways, in which mega funds cut $67 million from their $1.11 billion prior quarter position.
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General Methodology and Background Information: The latest available institutional 13-F filings of over 30+ mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets.
The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors 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.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, 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.