Five Prepackaged Software Stocks With Strong Hedge Fund Support: From Adobe To Microsoft

Software stocks had a bumpy start to the year, like most others, but have since managed to recuperate, with the largest industry ETFs having posted gains of more than 17% over the past six months. After analyzing hundreds of 13F filings for the second quarter, we’ll share a look into the most popular packaged software stocks among the roughly 750 hedge funds that we keep track of.

At Insider Monkey, we track around 750 hedge funds and other 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 the details here).

#5. Electronic Arts Inc. (NASDAQ:EA)

– Number of Hedge Fund Shareholders (as of June 30): 58

– Total Value of Hedge Funds’ Holdings (as of June 30): $2.27 billion

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 9.9%

Let’s start with Electronic Arts Inc. (NASDAQ:EA), which saw the number of funds in our database long its stock increase by two to 58. The largest stake was held by Philippe Laffont’s Coatue Management, which reported ownership of 4.72 million shares worth $358 million, after a 20% reduction in its exposure during the second quarter. Also notable was the position of Jim Simons’ Renaissance Technologies, which started a new stake comprising 1.79 million shares over the period. Shares of Electronic Arts Inc. (NASDAQ:EA) have gained more than 21% since the year started and more than 13% over the third quarter alone. Last month, the company posted fiscal first-quarter EPS of $0.07, $0.09 above the Street’s consensus, and revenue of $682 million, also beating estimates by more than $31 million. For the full year, management said it expects revenue of $4.75 billion and around $2.56. More recently, Electronic Arts’ shares spiked up on the release of the latest version of its “Madden NFL 17” game.

#4. Adobe Systems Incorporated (NASDAQ:ADBE)

– Number of Hedge Fund Shareholders (as of June 30): 58

– Total Value of Hedge Funds’ Holdings (as of June 30): $2.37 billion

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 4.9%

Same as Electronic Arts, Adobe Systems Incorporated (NASDAQ:ADBE) counted 58 hedge fund supporters among those we track long its stock at the end of the second quarter. This group included Aaron Cowen’s Suvretta Capital Management, which disclosed ownership of 1.96 million shares valued at $188.12 million as of June 30 and Eric Mindich’s Eton Park Capital, which boosted its exposure by 24% to 1.72 million shares  during the second quarter. Shares of Adobe Systems Incorporated (NASDAQ:ADBE) were somewhat volatile in the second quarter, but ultimately gained 2.14%. Since the quarter ended, however, they have managed to surge by almost 10%, on par with the Nasdaq index. Even though Adobe trades at roughly 58 times its trailing-twelve-month earnings, it still looks cheaper than many of its software peers, which trade, on average, at around 76 times earnings. However, it is also trading at a price-to-sales ratio of almost 10x, almost double compared to the average of its industry peers.

#3. salesforce.com, inc. (NYSE:CRM)

– Number of Hedge Fund Shareholders (as of June 30): 60

– Total Value of Hedge Funds’ Holdings (as of June 30): $2.14 billion

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 4%

As of the end of the second quarter, salesforce.com, inc. (NYSE:CRM) counted 60 hedge fund supporters in our database, down from 63 in the previous quarter. One of the largest positions was owned by Eashwar Krishnan’s Tybourne Capital Management, which last declared holding more than 2.36 million shares of the company. Also quite bullish seemed Columbus Circle Investors, which started a new stake comprising 742,906 shares during the April-June period. Shares of salesforce.com, inc. (NYSE:CRM) have gained roughly 5.7% over the past six months. However, they have had a tough third quarter, tumbling almost 5%, most recently on the back of its earnings report released last week. For the second quarter, the company posted EPS of $0.24 on revenue of $2.04 billion, beating estimates by $0.02 and $20 million, respectively. Sales rose by 25.2% year-over-year, while deferred revenue spiked by 26% year-over-year. Despite the strong results, investors were disappointed by the company’s third quarter guidance; management said it expects EPS of $0.20 to $0.21, on revenue of $2.11 billion to $2.12 billion, while analysts had estimated EPS of $0.24 and sales of $2.13 billion.

  

#2. Activision Blizzard, Inc. (NASDAQ:ATVI)

– Number of Hedge Fund Shareholders (as of June 30): 68

– Total Value of Hedge Funds’ Holdings (as of June 30): $4.1 billion

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 14%

The runner-up in our list is Activision Blizzard, Inc. (NASDAQ:ATVI), which witnessed an increase of more than 30% in hedge fund support over the second quarter. Among the largest shareholder were Philippe Laffont’s Coatue Management, with 13.89 million shares or more than half a billion dollars in stock, and Ken Griffin’s Citadel Advisors, which acquired 4.85 million shares of the company over the second quarter, taking its holdings to 5.62 million shares. Same as many U.S. stocks, Activision Blizzard, Inc. (NASDAQ:ATVI) had a rough start to the year, but has gained ground since February. Over the third quarter alone, shares have spiked by more than 12.5%. Most recently, the rally was driven by anticipation building up around the company’s Call of Duty XP, a huge in-person event related to its mega-popular war-game franchise.

#1. Microsoft Corporation (NASDAQ:MSFT)

– Number of Hedge Fund Shareholders (as of June 30): 131

– Total Value of Hedge Funds’ Holdings (as of June 30): $18.82 billion

– Hedge Funds’ Holdings as Percent of Float (as of June 30): 4.7%

As one might expect, the most popular software company is none other than Microsoft Corporation (NASDAQ:MSFT). Among the 131 funds in our database long its stock, we could highlight First Eagle Investment Management, with 23.45 million shares, valued at roughly $1.2 billion on June 30, and Ken Fisher’s Fisher Asset Management, which held 18.3 million shares of the tech behemoth. After a pretty volatile year, Microsoft Corporation (NASDAQ:MSFT)’s stock has managed to return almost 4% year-to-date. Over the third quarter, however, shares spiked up more than 14%, largely on the back of strong fourth quarter results posted on late-July, and, most recently, by the acquisition of AI-scheduling platform Genee. According to a Microsoft blog post, “Genee uses natural language processing and optimized decision-making algorithms so that interacting with a virtual assistant is just like interacting with a human one,” and will serve to the development of the company’s Office 365 suite.

 Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.