Bourgeon Capital Is All Over These Tech Stocks

Founded by John Zaro in 1999, Bourgeon Capital is a Connecticut-based long/short equity hedge fund. The fund is currently co-managed by Mr. Zaro along with Michael Keohane, who joined the fund in 2002 after working at billionaire Steve Cohen’s erstwhile hedge fund SAC Capital. According to Bourgeon Capital’s most recent ADV, it managed regulatory assets worth $262.7 million at the end of June. The fund recently submitted its 13F filing with the SEC for the reporting period of September 30, revealing a long U.S. equity portfolio worth $156.06 million. The filing also revealed that Bourgeon Capital’s equity portfolio had a quarterly turnover of 30.43% during the third-quarter and that the fund’s exposure was greatest towards the tech sector, stocks from which accounted for one-fourth of its portfolio’s value.

Considering Bourgeon’s fondness for tech stocks, in this article, we are going to take a look at its top-5 picks from that space and will discuss how these stocks have been performing of late.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

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#5 Apple Inc. (NASDAQ:AAPL)

– Shares Owned by Bourgeon Capital (as of September 30): 40,240

– Value of the Holding (as of September 30): $4.54 million

Bourgeon Capital increased its stake in Apple Inc. (NASDAQ:AAPL) by 20% during the third quarter, which helped push the hardware giant up to being the fifth -largest tech position held by the fund at the end of September. Shares of Apple Inc. (NASDAQ:AAPL) have taken a hit recently, after the company came out with its fiscal fourth-quarter numbers. Nevertheless, the stock is still trading in the green for the year, up by 1.42%. For its fourth-quarter, analysts had expected Apple to report EPS of $1.66 on revenue of $46.88 billion. While Apple managed to beat their earnings estimate by $0.01, its revenue of $46.85 billion was a tad lower than expectations. The US Patents and Trademark Office (USPTO) recently approved and published a patent filed by the company in 2014, which shows that Apple is working on bringing a radical change to the design of its bestselling product, the iPhone. The patent has led analysts and tech experts to believe that the next generation iPhone will have a flexible screen that will be both bendable and foldable.

 – Related Reading: iSurprise: 7 Amazing Apple Patents for the Next iPhone

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#4 Paypal Holdings Inc (NASDAQ:PYPL)

– Shares Owned by Bourgeon Capital (as of September 30): 112,800

– Value of the Holding (as of September 30): $4.62 million

Paypal Holdings Inc (NASDAQ:PYPL) has been a part of Bourgeon Capital’s equity portfolio ever since it was spun-off from parent eBay Inc (NASDAQ:EBAY) last year. During the third-quarter, the fund inched up its stake in the electronic payment processing company by 20%. Other hedge funds that also increased their stakes in Paypal Holdings Inc (NASDAQ:PYPL) marginally during that period included Paul Cantor, Joseph Weiss, and Will Wurm’s Beech Hill Partners and billionaire Ken Fisher‘s Fisher Asset Management. Paypal’s stock recently made its lifetime high of $44.52 after the company reported its third-quarter results, and is currently trading up by 14% year-to-date. In the past few weeks, analysts have raised concerns over the company’s balance sheet, arguing that over 75% of its EBITDA is still derived from parent eBay and its subprime credit book. According to them, the company’s credit book is of extremely low quality and with eBay planning to end or renegotiate its existing operating agreement with PayPal when it comes up for expiration, the latter’s stock could witness a severe fall going forward.

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On the next page we’ll check out the top-3 tech stock picks of the fund.

#3 Palo Alto Networks Inc (NYSE:PANW)

– Shares Owned by Bourgeon Capital (as of September 30): 30,751

– Value of the Holding (as of September 30): $4.9 million

Moving on, Bourgeon Capital lowered its stake in Palo Alto Networks Inc (NYSE:PANW) by 6% during the July-to-September period. Shares of the cybersecurity giant have had a rough ride this year, losing 13.5% of their value. Nevertheless, most analysts who track the stock continue to remain bullish on it, citing the company’s profitability, growth, and returns on assets (ROA), which they think is much better than its peers. According to them, the stock is trading at reasonable valuations and all the company needs to do is maintain its ROA for the stock to see meaningful upside going forward. On September 19, analysts at Imperial Capital reiterated their ‘Outperform’ rating and $190 price target on the stock, which represents potential upside of 25%.

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#2 Alphabet Inc (NASDAQ:GOOG)

– Shares Owned by Bourgeon Capital (as of September 30): 6,638

– Value of the Holding (as of September 30): $5.34 million

Amid an over 12% rise in Alphabet Inc (NASDAQ:GOOG)’s stock during the third-quarter, Bourgeon Capital upped its holding in the company by 5%. Last month, Alphabet Inc (NASDAQ:GOOG)’s stock crossed the $800 barrier for the first time and hit its lifetime high of $816.68. Though the stock has declined considerably since the company reported its third-quarter results on October 27, it is still trading up by 3.12% year-to-date. For its third-quarter, Alphabet reported much better-than-expected numbers, with revenue from advertising registering a growth of 18% year-over-year, driven by a 23% rise in revenue from Google’s operations. Other highlights from the earnings release included a 40% quarter-over-quarter increase in revenue from the ‘Other Bets’ segment, whose losses for the quarter stood at $865 million, considerably lower than the $980 million that Alphabet had reported for the segment in the prior quarter. Apart from its financial results, the company also announced that its Board has authorized the repurchase of up to $7 billion of its Class C stock.

#1 Cisco Systems, Inc. (NASDAQ:CSCO)

– Shares Owned by Bourgeon Capital (as of September 30): 170,000

– Value of the Holding (as of September 30): $5.39 million

Despite Bourgeon Capital lowering its holding in Cisco Systems, Inc. (NASDAQ:CSCO) by 6% during the third-quarter, the company remained its top stock pick at the end of that period. Shares of the networking giant have performed amazingly well this year, rising by 14%, especially when one takes into account the beating they took at the start of 2016. In spite of this impressive rally, the stock still sports an attractive annual dividend yield of 3.35%. Most analysts expect the company to return capital to shareholders at a healthy rate going forward, due to its healthy balance sheet and strong cash flow generation. The 34 leading analysts and research firms on the Street who track the stock currently have an average rating of ‘Overweight’ on it with an average price target of $32.85, signifying upside potential of 6%.

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