The semiconductor industry, up about 10% YTD as represented by the SPDR S&P Semiconductor ETF (NYSEARCA:XSD), is the life-blood of our digital economy, enabling our computing devices, automobiles, and all sorts of electronic gadgets, as well as our industrial and defense infrastructure. In this article, via an analysis based on the latest available institutional 13-F filings, we identify the fabless semiconductor companies that legendary or guru fund managers favor the most based on their buying, the percentage of outstanding shares that they hold in combination, and also the number of gurus that have a position and/or bought the stock during the quarter.
This article is a part of our series on fund activities in the semiconductor industry. Earlier we covered the investing activities of the world's largest money managers or mega funds in the fabless semiconductor and semiconductor manufacturing companies. Also, in a successive article, that can be later accessed from our author page, we will also cover guru fund investing activities in semiconductor manufacturing companies, and in semiconductor equipment companies.
These legendary or guru fund managers, such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, are well-known for their savvy in picking winning stocks year after year. Taken together, these guru fund managers are bullish on the fabless semiconductor group, adding a net $485 million in Q4 to their $2.38 billion prior quarter holdings in the group (for more general information on these guru funds, please look at the end of the article).
The following are the fabless semiconductor companies that these guru fund managers are most bullish about, that also trade undervalued compared to the peers in their group (see Table):
Marvell Technology Group (NASDAQ:MRVL): MRVL is a leading fabless semiconductor company. It designs, develops and markets analog, mixed-signal, digital signal processing, and embedded and stand-alone ARM-based microprocessor IC's, used for high-speed, high-density, digital data storage and broadband digital networking markets. A total of nine guru funds, the largest number among stocks in this group, hold 10.5% of the outstanding shares v/s their 3.0% weighting in the group, with five funds buying and three selling during the quarter. Also, together guru funds added a net $130 million in Q4 to their $756 million prior quarter position in the company. The top buyers were guru Daniel Loeb's event-driven hedge fund Third Point LLC ($145 million), and Tiger Cub and Star Manager Lee Ainslie's hedge fund Maverick Capital ($71 million), and the top holders were Maverick Capital ($291 million), guru David Einhorn's shareholder activist hedge fund Greenlight Capital ($253 million), and Oracle of Australia Kerr Neilson's hedge fund Platinum Investment Management ($176 million).
MRVL is scheduled to release its Q2 (April) quarter on the 17th, after the market close. In its latest quarter, it reported slightly better-than-expected results, with revenues coming in-line and earnings beating estimates (21c v/s 18c). The stock is down since that report, and up about 4% YTD. However, things are lookup up going forward for MRVL, and its rival LSI Logic (also discussed below) based on the improving trends in the HDD (hard-disk drive) and SSD (solid-state drive), driven in part by social networking and the increasing demand for data storage. The stock trades at a bargain, especially considering the attractive growth characteristics of its target markets. It trades at a discount 9-10 forward P/E and 1.7 P/B, compared to averages of 25.2 and 2.2 for its (small-cap) peers in the electronic components semiconductor group, while earnings are projected to rise modestly from $1.27 in 2012 to $1.46 in 2014.
LSI Corp. (NASDAQ:LSI): LSI is a designer of complex high-performance ICs and storage systems. Its silicon-to-systems solutions are at the heart of products that create, store, consume and transport digital information. Its ICs are used in hard disk and solid state drives, high-speed communications and storage systems, computer servers and PCs.
A total of eight guru funds hold 5.2% of the outstanding shares, with two funds buying (with one buying a large amount) and four selling during the quarter. Also, together guru funds added a net $148 million in Q4 to their $92 million prior quarter position in the company. The top buyer was legendary billionaire investor Ken Griffin's Chicago-based hedge fund Citadel ($171 million), also the top holder at $173 million. Citadel. with $44.3 billion in 13-F assets, has a very strong track record, and the firm returned an astounding 20% in 2011, at a time when the average hedge fund lost nearly five percent in the year, so their large buy of LSI is especially noteworthy. Also, for those familiar with our series on legendary and guru funds, and the world's largest money managers or mega funds, we also noted in an earlier article that mega fund managers too were bullish on LSI, based on their Q4 2011 trading activity.
LSI stock has also been a relative outperformer in the semiconductor group, up about 33% YTD v/s the 10% rise for the average semiconductor stock. The company reported a good Q1 (March) last week, beating revenues and earnings (20c v/s 14c) estimates, and guiding Q2 earnings in-line and revenues above consensus estimates. However, just like in the case of MRVL above, even with its attractive growth markets in HDD and SSD, the stock can still be had at a bargain, currently trading at 9-10 forward P/E and 3.9 P/B compared to averages of 23.4 and 1.9 for its (mid-cap) peers in the electronic components semiconductor group, while earnings are projected to rise at a strong 34.5% annual rate from 47c in 2011 to 85c in 2013. The company was recently included by Bank of America in its list of 30 "Global Wave" stocks that it believes will perform well in a global economic upturn.
The following are some additional fabless semiconductor companies that guru fund managers accumulated in Q4 (see Table):
- Silicon Motion Technology Ads (NASDAQ:SIMO), a Taiwanese designer of micro-controllers, universal serial bus flash drivers, card readers, and embedded flash, in which guru funds together added a net $9 million in Q4 to their $3 million prior quarter position in the company; and
- 3D graphics processor designer and developer NVIDIA Corp. (NASDAQ:NVDA), in which guru funds together added a net $4 million in Q4 to their $20 million prior quarter position in the company.
Besides these, guru fund managers based on their Q4 trading activity indicated that they are bearish on the following fabless semiconductor companies:
- Broadcom Corp. (BRCM): Broadcom provides a portfolio of system-on-a-chip and software solutions for wired and wireless communications to manufacturers of computing and networking equipment, digital entertainment and broadband access products, and mobile devices, in which guru funds together cut a net $66 million in Q4 from their $232 million prior quarter position;
- Advanced Micro Devices (NASDAQ:AMD), that is the second largest producer of microprocessors, GPUs and chipsets in the world, in which guru funds together cut a net $38 million in Q4 from their $224 million prior quarter position;
- PMC Sierra Inc. (NASDAQ:PMCS), that designs, develops, markets and supports high-performance internet infrastructure semiconductor networking solutions that enable the transportation and storage of large quantities of digital data, in which guru funds together cut a net $10 million in Q4 from their $57 million prior quarter position;
- Spreadtrum Communications Inc. (NASDAQ:SPRD), that is a Chinese fabless designer of baseband processor and RF transceiver solutions for wireless communications market, in which guru funds together cut a net $7 million in Q4 from their $14 million prior quarter position; and
- Silicon Image Inc. (NASDAQ:SIMG), that is a leading provider of wireless and wired connectivity solutions such as transmitters, receivers, controllers and bridges that enable the reliable distribution and presentation of high-definition content for consumer electronics, mobile, and PC markets, in which guru funds together cut a net $3 million in Q4 from their $4 million prior quarter position.
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, but may initiate a long position in MLNX over the next 72 hours.
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.