In this article, via an analysis based on the latest available institutional 13-F filings, we identify the semiconductor manufacturing 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. We have included in this group both semiconductor manufacturing companies, as well as pure-play semiconductor foundries that manufacture integrated circuits and transistors on behalf of other companies.
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 another article, that can be accessed later from our author page, we cover guru fund investing activities in fabless semiconductor companies.
The legendary or guru fund managers included, such as Warren Buffet, 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 semiconductor manufacturing group, adding a net $200 million in Q4 to their $8.62 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 semiconductor manufacturing companies that these guru fund managers are most bullish about, that also trade undervalued compared to the peers in their group (see Table):
Skyworks Solutions Inc. (SWKS): SWKS is the industry's leading wireless semiconductor company focused on radio frequency (RF) and semiconductor solutions for mobile communications applications. A total of six guru funds hold 5.3% of the outstanding shares, with four funds buying and three selling during the quarter. Also, together guru funds added a net $190 million in Q4 to their $72 million prior-quarter position in the company. The top buyers were legendary billionaire investor Ken Griffin's Chicago-based hedge fund Citadel ($111 million) and guru Daniel Loeb's event-driven hedge fund Third Point LLC ($99 million), also the top holders at $150 million and $99 million respectively. 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 SWKS, based on their Q4 2011 trading activity.
SWKS reported its Q2 (March) quarter last Thursday, with revenue in-line and beating analyst earnings estimates (42c v/s 40c), and guiding Q3 EPS in-line. Its shares, up over 60% year to date, are up since the report, partly based on the report, but mostly also based on the strong performance by Apple Inc. (AAPL) in its latest Q2 (March) report, in which it obliterated analyst estimates ($12.30 v/s $10.04). SWKS is one of the chip suppliers to AAPL, and recently the stock has moved lock-step in tandem with the price of AAPL shares. Its shares currently trade at 12-13 forward P/E and 3.1 P/B compared with averages of 14.8 and 2.4 for its peers in the wireless semiconductors group, while earnings are projected to continue rising, albeit at a more modest 6.4% annual rate, from $1.89 in 2011 to $2.14 in 2013.
Texas Instruments (TXN): TXN is a global manufacturer of analog ICs and digital signal processors used in cell phones, navigation systems and PCs. A total of 16 guru funds hold 4.8% of the outstanding shares v/s the guru funds 2.5% weighting in the group, with six funds buying and six selling during the quarter. Also, together guru funds added a net $149 million in Q4 to their $1.62 billion prior-quarter position in the company. The top buyer was hedge fund guru Andreas Halvorsen's Viking Global Investors ($142 million), and the largest holder was Chicago-based Harris Associates LP, manager of the Oakmark Funds ($1.07 billion).
TXN just reported its Q1 (March) quarter last week, on Monday, beating analyst revenue and earnings (32c v/s 29c) estimates, and guiding Q2 revenues and earnings in-line. The street reaction to the beat has, however, been muted, with shares slightly down since the report based on a number of concerns. This includes a drop in wireless connectivity and OMAP sales, that is feeding worries that it is losing share to rival Broadcom (BRCM), an increase in inventory days, and over doubts whether the order pickup is based on end user demand or short-term based on inventory stocking at distributors. Its shares trade at 13-14 forward P/E and 3.3 P/B compared to averages of 15.3 and 3.4 for its peers in the general semiconductors group, while earnings are projected to grow modestly from $2.22 in 2011 to $2.39 in 2013.
ON Semiconductor Corp. (ONNN): ONNN is a supplier of broadband and power management ICs and standard semiconductors used in fiber-optic networking equipment and portable electronics. A total of six guru funds hold 6.0% of the outstanding shares, with six funds buying and two selling during the quarter. Also, together guru funds added a net $48 million in Q4 to their $176 million prior-quarter position in the company. The top buyer was Citadel ($35 million), also the top holder at $120 million. ONNN recently reported its Q1 (March) quarter, with revenues coming in-line and beating analyst earnings estimates (12c v/s 9c); its shares currently trade at 8-9 forward P/E and 2.5 P/B, compared to averages of 20.4 and 2.5 for its peers in the analog & mixed semiconductor group.
The following are some additional semiconductor manufacturing companies that guru fund managers accumulated in Q4 (see Table):
- Taiwan Semiconductor ADR or TSMC (TSM), that is the world's largest dedicated IC foundry manufacturing logic and mixed-signal ICs for fabless semiconductor companies and integrated device manufacturers, in which guru funds together added a net $71 million in Q4 to their $140 million prior-quarter position in the company;
- Cree Inc. (CREE): CREE is a manufacturer of light emitting diodes or LEDs, LED lighting, and semiconductor solutions for wireless and power applications, in which guru funds together added a net $36 million in Q4 to their $49 million prior-quarter position in the company;
- OCZ Technology Group (OCZ), that provides solid state drives (SSDs) used in high-performance storage and server systems, and high performance components for computing devices and systems, in which guru funds together added a net $9 million in Q4 to their $7 million prior-quarter position in the company; and
- STMicroelectronics (STM), that is a Swiss manufacturer of a broad range of ICs and discrete devices used in a wide variety of microelectronic applications, including telecommunications systems, computer systems, consumer products, automotive products and industrial automation and control systems, in which guru funds together added a net $7 million in Q4 to their $78 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 semiconductor manufacturing companies:
- SanDisk Corp. (SNDK), a manufacturer of non-volatile removable memory cards used in various computing and electronic devices, in which guru funds together cut a net $136 million in Q4 from their $342 million prior-quarter position;
- Micron Technology (MU), a leading manufacturer of semiconductor memory solution, including DRAM, NAND and NOR flash memory, phase change memory, and image sensors, in which guru funds together cut a net $91 million in Q4 from their $245 million prior-quarter position;
- Intel Corp. (INTC), that is one of the world's largest manufacturers of semiconductor chips, including microprocessors, chipsets, network processors, motherboards, non-volatile memory and storage, in which guru funds together cut a net $61 million in Q4 from their $3.85 billion prior-quarter position;
- Microchip Technology Inc. (MCHP), that manufactures microcontrollers, application-specific standard products, and related mixed-signal and memory products for the consumer, automotive, office automation, communications and industrial markets, in which guru funds together cut a net $34 million in Q4 from their $81 million prior-quarter position;
- Atmel Corp. (ATML), a manufacturer of a wide range of highly integrated semiconductor integrated circuit products, including microcontrollers, application specific ICs, non-volatile memory, and RF components, in which guru funds together cut a net $26 million in Q4 from their $350 million prior-quarter position;
- Triquint Semiconductor (TQNT), that manufactures a broad range of high-performance RF, analog and mixed-signal ICs that are incorporated into a variety of communications products, including cellular phones and pagers, fiber optic telecommunications equipment, satellite communications systems, high performance data networking products and aerospace applications, in which guru funds together cut a net $21 million in Q4 from their $79 million prior-quarter position; and
- RF Micro Devices Inc. (RFMD), that manufactures radio frequency systems and solutions that drive mobile communications. Its applications are used in mobile devices, base stations, wireless LANs and advanced metering devices, in which guru funds together cut a net $15 million in Q4 from their $17 million prior-quarter position.
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