In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the computer hardware 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 bearish on the group, cutting $1.34 billion in Q4 from their $296.70 billion prior quarter position.
The following are computer hardware companies that these mega fund managers are most bullish about (see Table):
Seagate Technology (STX): Seagate manufactures hard disk drives for the enterprise, desktop, mobile computing and consumer electronics markets. Mega funds together added a net $25 million in Q4 to their $3.12 billion prior quarter position in the company, and taken together, mega funds hold 26.4% of the outstanding shares. The top buyer was Ameriprise ($203 million), and the top holder was Fidelity Investments ($960 million).
STX shares have been in a tight ten-week consolidation pattern after a huge rally in early February was sparked when the company reported a stellar Q4. This was arguably one of the best Q4 reports among large-caps. In the report, STX obliterated analyst earnings estimates ($1.32 v/s $1.08) and gave strong guidance on revenue and gross margin for the next quarter and full year. The stock is currently up over 60% YTD, and trades at a very cheap 3-4 forward P/E, while earnings are projected to rocket up at a 161.7% annual rate from $1.24 in 2011 to $6.30 in 2012 and $8.48 in 2013. Its closest peer is another hard disk drive manufacturer, Western Digital Corp. (WDC). WDC trades at 4-5 forward P/E, while its earnings are projected to also rise at a strong 62.6% annual rate from $3.28 in 2011 to $8.68 in 2013.
While STX is admittedly a better value based on its forward P/E and growth characteristics, the removal of a major portion of the world's hard disk drive manufacturing capacity in the Thai floods last year and the recent acquisition of Hitachi's hard drive business by WDC are expected to be a net positive for both companies going forward, raising average selling prices and margins for the company's products for at least the intermediate-term.
Fusion-IO Inc. (FIO): FIO is engaged in the development, marketing and sale of storage memory platforms for data centralization in the U.S. Its platforms enhance the processing capabilities within a datacenter by relocating process-critical or active data from centralized storage to the server where it is being processed. Mega funds together added a net $292 million in Q4 to their $181 million prior quarter position in the company, and taken together, mega funds hold 18.6% of the outstanding shares. The top buyer was Fidelity Investments ($213 million), also the top holder at $318 million.
FIO shares trade at a very premium current 71 P/E, on a TTM basis, compared to the 16.6 average for its peers in the computer storage devices group. However, the Street is extremely bullish on the company, including recent positive statements from Morgan Stanley and CSFB last month. Both reiterated their overweight/outperform rating on the stock. While current fundamentals do not support the high valuation, the bullishness is based on the excellent long-term prospects for the firm's technology in helping enterprises manage the ever-increasing huge amounts of data that are being constantly generated and that need to be processed to help them monetize their business models. The company counts Apple Inc. (AAPL) and Facebook (NASDAQ:FB) among its largest customers. Furthermore, shares have also been buoyed by rumors that the company could be acquired by Intel Corp. (INTC) at valuations of well over $40, significantly above current prices in the $27 range.
Netapp Inc. (NTAP): NTAP manufactures integrated network storage and data management hardware for corporations and government agencies. Mega funds together added a net $8 million in Q4 to their $6.83 billion prior quarter position in the company, and taken together, mega funds hold 45.3% of the outstanding shares. The top buyers were Dodge & Cox ($311 million) and UBS Global AG ($201 million), and the top holders were Goldman Sachs ($635 million), Vanguard Group ($593 million) and T Rowe Price ($560 million). NTAP shares lost over a third of their value last year, but are up about 10% YTD. Shares trade at a current 17.1 P/E and 3.7 P/B compared to averages of 16.6 and 2.2 for its peers in the computer storages devices group.
Besides these, mega funds based on their Q4 trading activity indicated that they are bearish on the following computer hardware stocks (see Table):
Apple Inc. is probably among the most innovative companies the world has ever known. Apple is the maker of the iPhone, iPod and iPad, was founded by the late Steve Jobs, and is one of the world's largest manufacturers of personal computers, mobile communication devices, and portable digital music players. Mega funds together cut a net $628 million in Q4 from their $219.53 billion prior quarter position in the company.
Data storage vendor EMC Corp. (EMC), in which mega funds together cut a net $354 million in Q4 from their $25.77 billion prior quarter position in the company.
Western Digital Corp., that manufactures hard disk drives for the enterprise, desktop, mobile computing and consumer electronics markets, in which mega funds together cut a net $137 million in Q4 from their $2.41 billion prior quarter position in the company.
Hewlett Packard Co. (HPQ), a Silicon Valley marquee company, that is a leading provider of IT and outsourcing services, PCs and peripherals, printers and scanners, and servers and storage devices, in which mega funds together cut a net $126 million in Q4 from their $17.95 billion prior quarter position in the company.
Dell Inc. (DELL), that provides desktop PCs, mobility products, servers and networking products to individuals, businesses and governments, in which mega funds together cut a net $102 million in Q4 from their $8.25 billion prior quarter position in the company.
Lexmark International Inc. (LXK), a provider of printing, imaging, document workflow, and content management solutions worldwide, including monochrome and color laser printers, multi-function devices, inkjet printers, and dot-matrix printers, in which mega funds together cut a net $93 million in Q4 from their $627 million prior quarter position in the company.
QLogic Corp. (QLGC), a provider of storage networking, high-performance computing networking, and converged networking infrastructure solutions, in which mega funds together cut a net $82 million in Q4 from their $625 million prior quarter position in the company.
NCR Corp. (NCR), a world leader in providing products for the self-service revolution, including ATMs, cash dispensers, self-service kiosks, and point-of-sale and self-check-in/out systems for various industries, in which mega funds together cut a net $33 million in Q4 from their $661 million prior quarter position in the company.
Teradata Corp. (TDC), a company focused on raising intelligence through data warehousing and enterprise analytics, in which mega funds together cut a net $22 million in Q4 from their $3.98 billion prior quarter position in the company.
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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