By analyzing 13F filings from hedge funds and other notable investors in our database, we can develop investment strategies; for example, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (learn more about our small cap strategy). We can also use 13Fs to see how fund portfolios change over time. At the end of September, billionaire Dan Loeb’s Third Point owned 710,000 shares of Apple Inc. (NASDAQ:AAPL) after having increased their holdings by 67% during the third quarter of 2012. Over the next three months, however, Loeb and his team dumped all of these shares and had no long position in Apple Inc. (NASDAQ:AAPL) according to Third Point’s 13F filing for the fourth quarter of the year (see more of Loeb’s recent portfolio activity).
Third Point was adding a number of new stock picks to its portfolio in Q4 while it was selling Apple Inc. (NASDAQ:AAPL) including News Corp (NASDAQ:NWSA) and Morgan Stanley (NYSE:MS). The biggest buy in the tech sector was its 525,000 shares of Equinix Inc (NASDAQ:EQIX), a $10 billion market cap data center services company. Equinix’s stock price is up 42% in the last year, significantly outperforming the broader indices, as the company has delivered impressive growth numbers. Specifically, in 2012 revenue was up 21% from the previous year. The four year CAGR, beginning in 2008, is 28%; this shows that sales growth was only slowing slightly as Equinix has increased in size. The fourth quarter numbers were less good, with revenue only increasing 14% versus a year earlier- this might be random variation but could signify the start of decelerating growth.
Over time, however, Equinix has been racking up significant operating costs. As a result while earnings did increase by 60% last year from their levels in 2011, they are up only 37% from 2008 figures. In addition, the market is pricing in very high growth from what Equinix achieved in 2012: the current market cap is 72 times trailing earnings. Even with consensus earnings growth being considerable for the next couple years, the forward P/E- based on projections for 2014- is still higher than we would like at 41. We do like the recent earnings growth rates over 2011 levels, but we would generally want to see a company such as Equinix sustain that performance even if we didn’t have concerns about the revenue numbers from the fourth quarter of the year.
Here are some other hedge funds who like Equinix: