By Matt Doiron
Daniel Benton's technology and services focused hedge fund Andor Capital Management has filed its 13F for the second quarter of 2013, disclosing many of its long equity positions as of the end of March. We track the fund's 13Fs alongside those of hundreds of other hedge funds and notable investors. In our research we've found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and our portfolio based on these techniques outperformed the S&P 500 by 33 percentage points over the last 11 months. Of course, another use of 13Fs is as a source of initial investment ideas which can be researched further if they seem interesting. Read on for our quick take on Andor's five largest holdings, see the full 13F on the SEC's website, or compare these picks to those in previous filings.
Benton increased his stake in Google (NASDAQ:GOOG), which had already been his top pick at the beginning of April, over the course of the quarter. As the tech company's stock price bounces around $900 per share, it is valued at 17 times forward earnings estimates. Last quarter its net income grew by 16% compared to the second quarter of 2012, and if Google can hit analyst targets for next year and continue to grow earnings at double digit rates it could easily justify that valuation. However, prospective investors would have to look into how much of the improvement is due to one-time benefits from the integration of the Motorola business.
Andor initiated a position of 5 million shares in $14 billion market cap memory chip manufacturer Micron Technology (NASDAQ:MU) during Q2. The stock has more than doubled in the last year as conditions have not been as poor as investors had previously feared. However, Micron is still unprofitable on a trailing basis even after turning a small profit in its most recent quarterly report. The sell-side is predicting $1.76 per share in earnings next year, implying a forward P/E of only 8, but we would be worried that that may be too optimistic a figure.
Apple (NASDAQ:AAPL) was another of the fund's top picks with the filing disclosing ownership of 125,000 shares- up from 100,000 three months earlier. Apple is off its lows, but is still down 25% from its levels a year ago (roughly matching the decline in the company's earnings in its most recent quarter compared to the same period in the previous fiscal year). With a trailing P/E of 12, and cash accounting for a significant portion of the market capitalization (the company has recently made moves to return at least somewhat more cash to investors), markets seem to be expecting Apple's net income to continue to decline in the future.
Benton and his team bought 2.5 million shares of Taiwan Semiconductor Manufacturing (NYSE:TSM) between April and June to make the company another of their top picks. At a market cap of $84 billion, Taiwan Semiconductor Manufacturing trades at 13 times its trailing earnings- close to value territory, if it can manage even slight growth on the bottom line going forward. Recent reports show fast growth, though we suspect that is related to recent acquisitions or other events. Still, given the cheapness of the stock it may be worth a look for investors interested in semiconductors.
According to the 13F, Andor owned 2 million shares of Pandora (NYSE:P) at the end of the quarter. The Internet radio service has doubled in price year to date, even as EPS have been negative the past couple of quarters. The sell-side is calling for 30 cents per share in earnings for the forward fiscal year, but even so that results in a forward P/E of more than 50. Many market players are bearish on the stock, with the most recent data showing 27% of the float held short, and in fact we would be concerned about potential competition from Apple or other quarters.
Business relationship disclosure: This article is written by Insider Monkey's writer, Matt Doiron, and edited by Meena Krishnamsetty. They don't have any business relationships with any of the companies mentioned in this article and they didn't receive compensation (other than from Insider Monkey and Seeking Alpha) to write this article.