Apple Attracts More Hedge Funds, but Other Tech Giants Keep Up

It is one of the market’s great paradoxes. Although today’s tech giants are some of the largest companies in the world, many of them are growing at double-digit percentage rates. While the law of large numbers has befallen Apple Inc. (NASDAQ:AAPL), and to an extent Microsoft Corporation (NASDAQ:MSFT)Facebook Inc (NASDAQ:FB), Alphabet Inc (NASDAQ:GOOGL),  and Amazon.com, Inc. (NASDAQ:AMZN) are still growing rapidly. In this article, we analyze the five tech giants more in depth and use recently filed 13F data to see how hedge funds adjusted their portfolios in these names during the first quarter.

Ellica / Shutterstock.com

Ellica / Shutterstock.com

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).

#5 Amazon.com, Inc. (NASDAQ:AMZN)

– Number of Hedge Fund Holders (as of March 31): 133
– Total Value of Hedge Fund Holdings (as of March 31): $14.7 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 5.30%

Of the 766 elite funds that Insider Monkey tracks, Amazon.com, Inc. (NASDAQ:AMZN) was included in the equity portfolios of 133 funds at the end of the first quarter, down from 141 in the fourth quarter. Hedge funds are for the most part still long Amazon.com because they like the company’s seemingly unbeatable strategy of driving down margins for everybody else and slowly gaining market-share until reaching critical mass. Because of Amazon’s strategy, the company has expanded into many different verticals and has grown revenues rapidly. With the emergence of its highly profitable cloud division, Amazon’s revenue growth will likely translate to profit growth in the future too. Although the stock trades at a nose-bleed forward P/E of 71, Amazon could prove cheap in a decade’s time if its growth initiatives bear fruit.

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#4 Microsoft Corporation (NASDAQ:MSFT)

– Number of Hedge Fund Holders (as of March 31): 144
– Total Value of Hedge Fund Holdings (as of March 31): $20.83 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 4.80%

Although the decline of the PC market caught Microsoft Corporation (NASDAQ:MSFT) off-guard and the company totally missed the boat on social and search, Microsoft still dominates the Enterprise segment, and it is rapidly catching up in the cloud space. Microsoft’s Office is still the main productivity suite used by millions of companies around the world and the company’s cloud division is rapidly growing. With a dividend yield of 2.88% and a reasonable forward P/E of 17.32, the stock is arguably a value play and could rally substantially if the company’s HoloLens becomes a hit.

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#3 Apple Inc. (NASDAQ:AAPL)

– Number of Hedge Fund Holders (as of March 31): 152
– Total Value of Hedge Fund Holdings (as of March 31): $14.82 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 2.50%

The smart money is divided on Apple Inc. (NASDAQ:AAPL). Although Carl Icahn’s Icahn Capital LP completely sold out of the stock due to concerns that the Chinese government might make life difficult for the company in the country, Warren Buffett’s Berkshire Hathaway recently established a $1 billion plus stake in the stock. Like it has been since 2007, Apple’s future fortunes largely depend on how well the iPhone sells. Although iPhone sales fell for the first time ever on a year-over-year basis, iPhone demand can still come back if Apple adds more innovation to future versions or if global economic conditions improve. With its hundreds of billions in cash, and foward P/E of 10.5, the stock looks cheap.

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#2 Alphabet Inc (NASDAQ:GOOGL)

– Number of Hedge Fund Holders (as of March 31): 155
– Total Value of Hedge Fund Holdings (as of March 31): $14.98 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 2.90%

The number of elite funds holding class A shares of Alphabet Inc (NASDAQ:GOOGL) rose by one quarter-over-quarter to 155 at the end of March.  Additionally, 142 funds reported holding class C shares of Alphabet Inc (NASDAQ:GOOG), unchanged over the quarter, having amassed $14.90 billion worth of stock. Because of the company’s dominance in search, various European countries have made life difficult for Alphabet. In late May, Alphabet’s Google division’s Paris headquarters was raided by police in a French tax probe. The French finance ministry contends that the company owes as much as 1.6 billion euros ($1.79 billion) in back taxes. Alphabet’s Google division also faces a European Commission fine of around 3 billion euros for unlawfully promoting its services at the expense of hurting smaller rivals. Despite the fines, Alphabet remains a cash printing machine and the stock trades at just 18 times forward earnings estimates.

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#1 Facebook Inc (NASDAQ:FB)

– Number of Hedge Fund Holders (as of March 31): 164
– Total Value of Hedge Fund Holdings (as of March 31): $14.54 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 4.50%

Facebook Inc (NASDAQ:FB) was in the equity portfolios of 164 funds from our database at the end of the first quarter, up from 146 at the end of the fourth quarter. The increased hedge fund ownership isn’t surprising. Despite the fact that it is on track to make tens of billions of dollars in revenue every year, the company is still growing at a very fast pace. For Facebook’s most recent quarter, sales rose 52% year-over-year to $5.38 billion, while the company’s EPS of $0.77 exceeded estimates by $0.15 per share. Given Facebook’s wide moat, margin leverage, and network effects, the stock remains a must-hold for many savvy investors’ portfolios. Given Mark Zuckerberg’s visionary strengths, investors can look forward to Facebook owning a leading share of the virtual reality, messaging bot, and artificial intelligence market over the next decade too.

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