Billionaire Steven Cohen's Q1: High Conviction Sells Of Apple And Baidu And Other Tech Bets

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Includes: AAPL, AMD, BIDU, DVMT, LNKD, MU, QCOM, SAP, STX, TDC
by: GuruFundPicks

Stamford, CT-based leading multi-strategy hedge fund SAC Capital, founded and led by legendary manager Steven Cohen, filed its latest 13-F for Q1 2012 indicating that it ended the quarter with $22.24 billion in 13-F assets, up from the $15.8 billion in 13-F assets in its prior Q4 filing. Mr. Cohen is among the most high-profile hedge fund managers, and has been dubbed as "The Hedge Fund King" in a 2006 Wall Street Journal article and was ranked 94th on Time Magazine's annual list of the most influential people. His net worth is estimated by Forbes at $8.3 billion, ranking him as the 35th richest person in the U.S. He is also among the highest compensated hedge fund managers, with a $1 billion paycheck in 2005 and again in 2010.

His Hedge Fund, SAC Capital, is among the giants on Wall Street both in terms of assets under management as well as consistent long-term performance at about 30% annual returns over the last two decades. The hedge fund is incorporated offshore in Anguilla, British West Indies, and maintains trading offices in Stamford, CT and New York City, with satellite offices in San Francisco, Hong Kong, Boston and London. While the 2/20 compensation structure is fairly standard in the hedge fund industry, meaning 2% of AUM and 20%-30% of annual returns, SAC Capital is able to charge a premium of 3/50 to investors in its fund, the highest in the industry. The fund is well-diversified with over 2,000 positions, and about 40% of its holdings are in large-caps, another 40% is in mid-caps and the remaining 15% is in small-cap equities.

On any given day, SAC Capital is estimated to account for between 1%-3% of the trading volume on the major exchanges, and thus has significant clout in terms of money flow and at least short- to intermediate-term equity pricing. Also, their capital is well-diversified across industries. Thus, in analyzing its 13-F, we determined its highest conviction bets by sector, selecting the largest buys and sells in size, where the buy/sell is also a significant proportion of its prior quarter position in that company.

Based on that analysis, the following are two of its high conviction sells in the tech sector Q1 2012 (a prior article on their high conviction bets in the basic materials and energy sectors can be accessed by clicking on the above hyperlink):

Apple Inc. (NASDAQ:AAPL): Probably among the most innovative companies the world has ever known, this maker of the iPhone, iPod and iPad, founded by the late Steve Jobs, is one of the world's largest manufacturers of personal computers, mobile communication devices and portable digital music players. SAC cut $571 million in Q1 from its $602 million prior quarter position, its biggest sell in the quarter by far. Other major institutions unloading AAPL in Q1 include mutual fund giant Putnam Investment Management selling 4.7 million shares from its 7.4 million share prior quarter position, and hedge fund guru Andreas Halvorsen's Viking Global Investors selling 1.1 million shares from its 1.3 million share prior quarter position.

AAPL is one of the strongest long-term performers in the market, up a massive forty-fold in the past decade and currently trading within 12% of its all-time-highs. While we continue to be impressed by the company's ability to post strong revenue and earnings growth, and beat analyst expectations, even at these elevated market-cap levels, the exit of major funds is worth noting, and would be a major concern if that trend should pickup in the next quarter(s). Overall, though, AAPL at 10-11 forward P/E, with earnings growing at 92% year-over-year in Q2 (March), and projected at 40% annual growth over the next two years, continues to be a gem of a buy based on current fundamentals, and we would look to add to it on any major pullback to its 200-day moving average, currently near $460.

Baidu Inc. (NASDAQ:BIDU): Often touted as the Google (NASDAQ:GOOG) of China, BIDU is a leading Chinese provider of internet search, targeted online advertising and other internet content services. SAC cut $134 million in Q1 from its $149 million prior quarter position, among its top five sells in the quarter. Other major institutions unloading BIDU In Q1 include Viking Global Investors selling 3.7 million shares from its 4.3 million share prior quarter position, hedge fund guru and Tiger cub Stephen Mandel's Lone Pine Capital selling out completely of its 2.4 million share prior quarter position, Tiger cub Chase Coleman's New York-based hedge fund Tiger Global Management selling 1.5 million shares of its 2.4 million share prior quarter position, and top ranked tech-focused hedge fund Coatue Management selling 1.1 million shares of it 1.8 million share prior quarter position.

BIDU reported its Q1 (March) a month ago, on April 24th, with revenues coming in-line and beating analyst earnings estimates (87c v/s 85c), and guiding Q1 revenues down ($847-$867 million v/s $869 million). The shares have reacted very negatively, down about 16% since the report and dropping as much as about 25% below its recent highs. The stock does have a volatile history, with many sharp pull-backs just in the last year, before it rebounded back up to the highs. At 18-19 forward P/E, the stock continues to trade at a discount to its growth rate, given the 82% year-over-year earnings growth in the most recent Q1 and the projected 45% earnings growth from $3.03 in 2011 to $6.41 in 2013.

The following are additional tech stocks that SAC is bearish about, selling shares in them in Q1 2012 (see Table):

  • LinkedIn Corp. (NYSE:LNKD), that operates an online professional network via its proprietary social networking platform, in which it cut $57 million in Q1 from its $69 million prior quarter position; and
  • SAP AG (NYSE:SAP), that is a leading German developer of collaborative e-business solutions for enterprise markets worldwide, in which it cut out completely its $39 million prior quarter position.

The following are tech companies that SAC is bullish about, accumulating shares in them in Q1 2012 (see Table):

  • Seagate Technology (NASDAQ:STX), that manufactures hard disk drives for the enterprise, desktop, mobile computing and consumer electronics markets, in which it added $64 million in Q1 to its $13 million prior quarter position;
  • Advanced Micro Devices (NYSE:AMD), that is the second largest producer of microprocessors, GPUs and chipsets in the world, in which it added $63 million in Q1 to its $1 million prior quarter position;
  • Micron Technology (NASDAQ:MU), a leading manufacturer of semiconductor memory solution, including DRAM, NAND and NOR flash memory, phase change memory, and image sensors, in which it added $50 million in Q1 to its $1 million prior quarter position;
  • Teradata Corp. (NYSE:TDC), a company focused on raising intelligence through data warehousing and enterprise analytics, in which it added $42 million in Q1 to its $4 million prior quarter position;
  • Qualcomm Inc. (NASDAQ:QCOM), a designer of CDMA-based, RF and power management ICs for system software used in wireless handsets, modem cards and networks, in which it added $41 million in Q1 to its $3 million prior quarter position; and
  • Data storage vendor EMC Corp. (EMC), in which it added $29 million in Q1 to its $17 million prior quarter position.

Table

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Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, 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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