Omega Advisors, run by renowned investor Leon Cooperman, released its 13F for Q4 2011 on February 10, 2012. In this installment of my analysis of recent purchases made by popular hedge funds, I have selected five notable tech stocks acquired by the fund and calculated my price targets to determine if opening a position in these companies makes sense at current levels.
1) Citrix Systems (CTXS)
Omega increased its position in CTXS by 32% during the last quarter by purchasing 376,200 shares. The stock traded in the range of $52 and $75 during this time period and exchanged hands for $71.46 at market close on February 10, 2012.
The company issued revenue guidance for fiscal year 2012 of $2.49 billion to $2.51 billion beating consensus estimates of $2.49 billion. However, its Non-GAAP EPS estimate of $2.70 to $2.74 was below analysts' estimates of $2.79 a share. The company is expected to grow its earnings at an annual rate of 16% slightly better than the projected 15% growth rate of the industry. Applying my estimated P/E of 20 to 2012 EPS estimate of $2.74, my price target of $82 a share is obtained. A return of 15% is possible from current levels.
2) Microsoft Corporation (MSFT)
MSFT is currently a $255 billion company by market cap and has a respectable dividend yield of 2.62%. The stock is up 17.5% YTD compared with the 11.5% increase in the NASDAQ (QQQ) index. Analysts expect the company to grow at an annual rate of 8.5% over the long term compared with the 20% growth rate of the application software industry. MSFT grew its earnings by 14% annually during the last five years.
Cooperman added 123,200 shares of MSFT stock taking Omega Advisors' total position to 1.355 million, an increase of 9%. The stock traded in the range of $25 and $27 during Q4 2011, and currently trades at $30.5. Applying a P/E of 11 to my calendar year 2012 EPS estimate of $2.84, my price target of $31 is obtained. The stock seems reasonably priced at current levels and I would not look to add or initiate a new position at these levels.
3) Apple Inc. (AAPL)
Omega Advisors increased its position in Apple by 3% by acquiring approximately 22,000 shares during the last quarter. It now owns about 681,000 shares AAPL stock. Apple currently trades at $494 and is a bargain despite being the world's largest stock by market capitalization. I have a relative valuation based price target of $677 a share. The analysis and fair value estimation was published in a recent article on Seeking Alpha.
4) Qualcomm, Inc. (QCOM)
Omega's position in QCOM changed by 31% during Q4 2011. The company bought 428,100 shares to take its total position to approximately 1.8 million shares. The stock traded in the range of $48 and $57 during the last quarter and currently trades for $62.
QCOM increased its earnings at an annual rate of 13% during the last five years and is now projected to grow at an annual rate of 16%. My target of $77 is obtained by applying a P/E of 20 to my 2012 EPS estimate of $2.92. A return of 25% is possible from current levels thus making QCOM one of the more attractive names on this list.
5) Research in Motion Limited (RIMM)
The Fortune 500 companies continue to desert RIMM. Once the dominant force with enterprise users, the iPhone has since taken over this space. Halliburton (HAL) was the latest company to announce that it was transitioning from RIMM's BlackBerry platform to the iPhone. The National Atmospheric and Oceanic Administration is also moving to the iPhone.
The stock is down 65% over the last 5 years. During this time period, the company grew its earnings at an annual rate of 32%. Going forward, analysts expect a decline of 2.3% annually.
Cooperman more than doubled his position in RIMM by adding 1.51 million shares of RIMM stock. The stock currently trades at $15.44. This seems to be a calculated gamble for Cooperman with the all the bad news priced into the stock. Any good news and the stock should deliver a handsome return. However, I would wait to open a position in RIMM. The stock seems fairly priced to me. Applying a P/E of 5 to 2013 EPS estimate of $2.92, my price target of $15 is obtained. I might be interested in RIMM if it tests its 52-week lows of $12.45.
As always, please do not consider this list as a "buy" list, rather use this list as a starting point for your research. Of the companies listed above, I find AAPL and QCOM particularly attractive based on fundamentals and growth prospects.