George Soros is piling up shares of PMC-Sierra Inc. (NASDAQ:PMCS) according to a 13G filed with the SEC. The public filing discloses that Soros Fund Management’s ownership of the semiconductor and software company has risen to 10.69 million shares, which account for 5.53% of its outstanding common stock. This marks an increase of nearly 4.63 million shares from the stake revealed in Soros’ most recent 13F filing for the reporting period of June 30.
George Soros is one of the world’s best known hedge fund managers and one of the greatest investors of all time. His family office, Soros Fund Management, was founded back in 1969 and is currently managed by its Chief Investment Officer, Scott Bessent. Soros retired and returned capital to outside investors at the end of 2011, so he does not participate in the daily operations of the firm anymore, but he still remains involved in its decisions and stock picks. Soros’ investment firm is seen as one of the most successful and profitable in the hedge fund industry, having delivering an average annualized return of 20% since its inception until 2010. Interestingly, Soros’ recent coal bets in the form of investments in Peabody Energy Corporation (NYSE:BTU) and Arch Coal Inc. (NYSE:ACI) might seem puzzling for the masses, as he once called coal the “lethal bullet” for climate change. In the meantime, Soros Fund Management oversees a public equity portfolio with a market value of $10.75 billion as of June 30.
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We follow hedge funds like Soros Fund Management because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 118%, outperforming the S&P 500 ETF by over 60 percentage points (see more details here).
PMC-Sierra Inc. (NASDAQ:PMCS) is a technology company that designs, develops, and supports semiconductor solutions for communications network infrastructure equipment worldwide. The company is driving innovation across three markets: storage, optical, and mobile networks. The company’s stock performance has been disastrous this year, as its shares are down by nearly 30% year-to-date. It is hard to believe that the stock was once trading above $255 per share, and this price level might still represent a mirage for some investors. Aside from George Soros, Eric Bannasch’s Cadian Capital and Ralph V. Whitworth’s Relational Investors are also heavily invested in PMC-Sierra, holding stakes of 29.68 million shares and 17.31 million shares, respectively.
The semiconductor and software company did not have a great start to 2015, facing weaker-than-expected growth in the carrier and storage end markets. As a result of its lower-than-expected financial results, PMC-Sierra announced its plans to pursue spending reduction efforts. Specifically, the company intends to cut spending by roughly 14%, which involves a reduction in its workforce of 200 employees worldwide. Other reduction measures are expected to be implemented so as to achieve approximately $40 million per year in savings. PMC-Sierra posted net revenues of $124.8 million for the second quarter, down by 2% year-over-year. The decrease in revenues was primarily impacted by lower sales volumes of its Mobile network products, which were in turn offset by higher volumes of its Storage and Optical network products. The company’s non-GAAP net income amounted to $18.0 million or $0.09 per diluted share, compared to $18.3 million or $0.09 per share reported a year ago. PMC-Sierra has been struggling greatly of late and the $40 million cost reduction might not trigger a turnaround right away. It might be the case that Soros has spotted some opportunities that might put the company back on track in the months or years ahead, despite PMC-Sierra’s outlook not appearing to very good at the moment.
Let’s now take a quick look at how the hedge funds within our database feel about PMC-Sierra Inc. (NASDAQ:PMCS). A total of 27 hedge funds tracked by Insider Monkey owned stakes in the company at the end of the second quarter, four funds more than in the prior quarter. Nevertheless, the value of the stakes shrunk to $664.22 million from $724.63 million over the quarter. Hedge funds we track are quite bullish on the company, as the 27 hedge funds own 39.30% of the company’s outstanding common stock.
To sum up, even though the future outlook of PMC-Sierra Inc. (NASDAQ:PMCS) is blurry at the moment, George Soros’ bullish move and the positive hedge fund sentiment might suggest that the company is yet to reveal its true intrinsic value. Therefore, it is highly likely that the stock will advance in the months ahead, barring further market mini-crashes.
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