In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the telecom equipment companies that are being accumulated and those being distributed by the world's largest fund managers, managing between $50 billion and over $700 billion in 13-F assets. Taken together these mega fund managers control over 35% 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. Also, taken together, they are neutral on the telecom equipment group, cumulatively both adding and cutting $8.96 billion each in Q4 from their $123.94 billion prior quarter position (for more general information on these mega funds, please look at the end of the article).
The following are the Telco Equipment companies that these mega fund managers are most bullish about, and that are also trading at a discount to the peers in their group (see Table):
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. Its products include switches, routers and other networking and communications hardware for corporate, education and government networks around the world. Mega funds together added a net $1.82 billion in Q4 to their $32.44 billion prior quarter position in the company, and taken together mega funds hold 31.7% of the outstanding shares. The top buyer was Wellington Management ($603 million), and the top holders were Vanguard Group ($4.36 billion) and State Street Corp. ($4.21 billion).
CSCO released its FQ2 (January) report two months ago, beating revenue and earnings estimates; the stock, however, has flat-lined since the report over concerns about its flattish guidance for FQ3. CSCO shares currently trades at 10-11 forward P/E and 2.1 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.
Akamai Technologies Inc. (AKAM): Akamai is a global provider of services that help enterprises and e-businesses improve the delivery of their content and applications over the Internet. Mega funds together added a net $327 million in Q4 to their $1.92 billion prior quarter position in the company, and taken together mega funds hold 33.8% of the outstanding shares. The top buyers were T Rowe Price Associates ($242 million) and Fidelity Investments ($186 million), and the top holders were Vanguard Group ($353 million), T Rowe Price ($326 million), and Morgan Stanley ($317 million).
AKAM released a surprisingly strong Q4 in early February, with earnings (45 cents vs. 40 cents) and revenue ($324 million v/s $311 million) trouncing estimates. The stock is up slightly since the report, and trades at a reasonable 19-20 forward P/E and 2.9 P/B compared with averages of 27.2 and 3.3 for its peers in the internet services group.
Brocade Communications Systems Inc. (BRCD): BRCD is a network solutions provider that helps organizations worldwide transition smoothly to a virtualized world where applications as information can reside anywhere, by providing data center networking and storage area networking solutions. Mega funds together added a net $91 million in Q4 to their $815 million prior quarter position in the company, and taken together mega funds hold 33.7% of the outstanding shares. The top buyer was Fidelity Investments ($75 million), and the top holders were Franklin Resources ($296 million) and Fidelity ($223 million).
BRCD reported a solid Q4 six weeks ago, beating analyst earnings (20c v/s 13c) and revenue estimates ($561 million vs. $542 million). However, it guided revenues and earnings lower for Q2 (April). Its shares as a result have been flat since the report, and they currently trade at 9-10 forward P/E and 1.2 P/B compared to averages of 24.9 and 2.4 for its peers in the computer networks group.
The following are some additional telecom equipment stocks that mega funds accumulated in Q4 (see Table):
- F5 Networks Inc. (FFIV), a leading provider of integrated Internet traffic and content management solutions, in which mega funds together added a net $98 million in Q4 to their $3.89 billion prior quarter position in the company; and
- Ubiquiti Networks Inc. (UBNT), that offers a portfolio of wireless networking products and solutions to network operators and service provider worldwide, including standalone and integrated radios, directional and sector antennas, and network management tools, in which mega funds together added a new $143 million position in Q4.
Besides these, mega funds based on their Q4 trading activity indicated that they are bearish on the following telecom equipment stocks (see Table):
- Riverbed Technology Inc. (RVBD), a provider of products and services that improve applications and accessibility of data over wide area networks or WANs, in which mega funds together cut a net $129 million in Q4 from their $1.83 billion prior quarter position in the company;
- 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 together cut a net $121 million in Q4 from their $417 million prior quarter position in the company; and
- Polycom Inc. (PLCM), a developer of communication products that enable unified video, voice and content collaboration for enterprise, government, education and healthcare customers, in which mega funds together cut a net $106 million in Q4 from their $1.14 billion prior quarter position in the company;
- Equinix Inc. (EQIX), that provides network-neutral co-location, inter-connection and managed services to enterprises, content providers, financial services companies and network service providers, in which mega funds together cut a net $104 million in Q4 from their $2.60 billion prior quarter position in the company;
- Acme Packet Inc. (APKT), that manufactures session border controllers, load balancers, routing proxies and multi-service security gateways, used in session delivery networks that enable delivery of next-generation voice, video and unified communications over IP networks, in which mega funds together cut a net $74 million in Q4 from their $888 million prior quarter position in the company;
- Juniper Networks Inc. (JNPR), that 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, in which mega funds together cut a net $58 million in Q4 from their $5.74 billion prior quarter position in the company;
- Sonus Networks Inc. (SONS), a provider of voice and multimedia infrastructure solutions that allow the delivery of voice and multimedia sessions over IP networks, in which mega funds together cut a net $9 million in Q4 from their $115 million prior quarter position in the company; and
- Adtran Inc. (ADTN), 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, with its solutions enabling voice, data, video and Internet communications across fiber-optic, copper-based and wireless network infrastructures, in which mega funds together cut a net $2 million in Q4 from their $608 million prior quarter position in the company.
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.
This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.
Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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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