In this article, via an analysis based on the latest available institutional 13-F filings, we identify toy & game company stocks that are being accumulated and those being distributed by legendary or guru fund managers. The legendary or guru fund managers included, 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 bearish on the toys & games group, cutting a net $55 million in Q4 from their $1.50 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 two of the toy & game companies that these guru fund managers are most bullish about (see Table for more companies they added):
Zynga Inc (ZNGA): ZNGA develops, markets and operates online social games, making them available worldwide on various platforms, including Facebook, MySpace and Yahoo, as well as the iPad, iPhone and Android devices. Guru funds together added a new $4 million position in Q4 in the company. The sole buyer was legendary billionaire investor Ken Griffin's Chicago-based hedge fund Citadel Advisers, that purchased $4 million worth in Q4. However, a number of large institutions, including Tiger cub Chase Coleman's New York-based hedge fund Tiger Global Management have filed SEC Form 13D/G's since the end of the quarter, indicating that they held more than 5% of the outstanding shares. In the case of Tiger Global, a 13D/G filing by them in mid-February indicated that they hold 7.66 million shares.
ZNGA reported its Q1 (March) the week before last, on Thursday, beating analyst revenue and earnings estimates (6c v/s 5c), and guiding FY 2012 EPS in-line. Its shares, already weak prior to the report, have dropped another 17% since then to new lows, as investors digest the recent huge insider sales in concert with above-average performance numbers in Q1 from this high-flier. A number of brokers have since upgraded the company, including Bank of America Merrill and JP Morgan; however, shares continue to trend to new lows, aided in part by the weak markets for the past week.
Earlier, in March, we cautioned that buying ZNGA and other social media companies at high valuations based on comparables was risky and reminiscent of the arguments made in the late 90s. However, with the recent drop in the price, the shares now trade at 21 forward P/E, which seems reasonable given the projected 24% annual revenue growth and 43% earnings growth from FY 2011 and 2013. We would wait, however, for a technical bottom to be formed, as the shares are currently in free fall. Also, it is likely that shares could retreat even further once the initial hype around the upcoming Facebook IPO subsides.
NetEase Inc. (NTES): NTES is a Chinese provider of an interactive online gaming community, internet portal and wireless value-added services. Guru funds together added $130 million to their $422 million prior quarter position in Q4, and taken together guru funds hold 7.3% of the outstanding shares. The top guru fund buyers were Tiger cub Stephen Mandel's hedge fund Lone Pine Capital ($61 million), and SMidCap-focused mutual fund company Columbia Wanger Asset Management, with $20.5 billion in 13-F assets ($39 million), and the top holder was Lone Pine Capital ($419 million).
NTES is scheduled to report its Q1 (March) next week, on Wednesday, after the close of market. Its shares are up an impressive 27% YTD, and an even more impressive rise to four-fold from the 2008-09 recession lows. In its latest Q4 that it reported in mid-February, the company beat analyst revenue and earnings estimates ($1.09 v/s $1.04). Its shares currently trade near all-time highs, at a current 14.7 P/E on a TTM basis, and at 3.8 P/B, compared to averages of 23.4 and 2.1 for its peers in the internet content group. Of the 23 analysts that cover the company, fifteen rate it buy/strong buy, another seven rate it hold, and one at underperform, with price target of $62, modestly above current prices in the $57 range.
Besides these, guru fund managers based on their Q4 trading activity indicated that they are bearish on the following toy & games companies (see Table):
- Activision Blizzard Inc. (ATVI), that publishes interactive entertainment software and peripheral products for consoles, hand-held devices and PC, in which guru funds together cut a net $94 million in Q4 from their $219 million prior quarter position;
- Hasbro Inc. (HAS), that is a leader in the design, manufacture, and marketing of games and toys, and other entertainment offerings worldwide, in which guru funds together cut a net $74 million in Q4 from their $115 million prior quarter position; and
- Electronic Arts Inc. (EA), that is a developer of video game software and content for play on video game consoles, PCs, handheld platforms, mobile phones and the Internet, in which guru funds together cut a net $34 million in Q4 from their $165 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.
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.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ZNGA over the next 72 hours.