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Apple Versus Microsoft: What Do Hedge Funds Think?

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Apple versus Microsoft: Apple Inc. (NASDAQ:AAPL) versus Microsoft Corporation (NASDAQ:MSFT). It is a clichéd contest debated by everyone from tech bloggers to university professors. If you follow the equity markets, we’re willing to bet you’ve taken a side once or twice, or at least thought about it. So instead of picking favorites using the same old tired P/E or earnings growth metrics, we are going to give you some information that’s a bit more useful.

We’re talking about hedge fund sentiment.

At Insider Monkey, our goal is to help you understand how to parse down the vast hedge fund industry into insight you can use. Our empirical research on hedge funds has allowed us to hone our small-cap strategy into a market-beating machine. In its first year ended last month, this strategy returned 47.6%, outpacing the S&P 500 by more than 29 percentage points.

The crowd’s pick: Apple

We track a little over 500 of the best and brightest hedge funds in existence (out of around 8,000 total), and in the Apple-Microsoft debate, the consensus filings are intriguing. According to the final numbers from last quarter, Apple was the third most popular stock among the money managers we track, with 122 hedge funds invested. Ninety-two elite hedge funds were long Microsoft at this time.

Relatively speaking, Google Inc (NASDAQ:GOOG) was a much more well-liked tech stock last quarter with a whopping 157 hedgies, but both Microsoft and Apple finished in this measure’s top 10, easily outpacing peers like Nokia Corporation (ADR) (NYSE:NOK) or Intel Corporation (NASDAQ:INTC). This overarching form of analysis isn’t the only way to compare the duo, though.

Einhorn’s pick: Apple

Within the aggregate data, there are quite a few interesting cases of noteworthy hedge fund managers choosing between the two based on a variety of factors. David Einhorn, for example, chose to go with Apple while closing out of Microsoft last quarter. His rational was explained in his Q2 2013 shareholder letter, in which Greenlight Capital wrote, “Windows 8 appears to be a flop, and a decade of mismanagement has put Microsoft at risk of becoming a shrinking company.” Apple, meanwhile, is still Einhorn’s No. 1 stock pick, accounting for just over 16% of his $5.3 billion equity portfolio.


Yacktman’s pick: Microsoft

One hedge fund manager who feels precisely the opposite is Donald Yacktman. At the Value Investing Congress on Monday, Yacktman—who’s particularly skilled at finding opportunities in the large cap space—said Apple isn’t as cheap as most think, reasoning that it can’t sustain its high profit margins.

Yacktman remarked his “hat’s off to Steve Jobs, he hit 4 home runs in a row,” to those in attendance, but in response to a question posed by an audience member on why he holds Microsoft but not Apple stock, his response was interesting. Essentially, Yacktman said that Microsoft’s profit margins are protected, i.e. there aren’t competing viable operating systems or Office products, while Apple’s margins are not. Assuming Samsung’s smartphones are close substitutes to Apple’s iPhone, Cupertino is theoretically more vulnerable to a shift in consumer preferences and/or a prolonged lack of innovation.

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