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Salesforce, EA, Red Hat: Rail-Splitter Likes These 5 Tech Stocks for Q3

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Illinois-based long/short equity hedge fund Rail-Splitter Capital Management recently disclosed its U.S. equity portfolio as of the end of June via a 13F filing submitted with the SEC. The fund was started by John Croghan and Richard Fradin in 2002 as Splitter Capital Management and has grown to hold $585.26 million in regulatory assets under management (AUM) as of February 26, 2016. According to Rail-Splitter Capital Management’s latest 13F filing, its U.S. equity portfolio was worth $416.63 million at the end of the second quarter and was comprised of long positions in 42 stocks. The fund’s exposure is highest to the information technology sector, stocks from which amassed over one-third of the value of its equity portfolio. Considering the fund’s high exposure to the tech sector, we’ll take a look at five of its prominent holdings from that space in this article and analyze their performance so far in 2016.

At Insider Monkey, we track around 765 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).

everything possible/Shutterstock.com

everything possible/Shutterstock.com

#5. J2 Global Inc (NASDAQ:JCOM)

 – Shares Owned by Rail-Splitter Capital Management (as of June 30): 183,564

 – Value of Holding (as of June 30): $11.6 Million

Let’s begin with J2 Global Inc (NASDAQ:JCOM), in which Rail-Splitter Capital Management increased its stake by 7% during the second quarter. Shares of the internet service provider suffered a big drop in March after Citron Research published a bearish report on it, which mentioned that the company is “spending a billion on a roll-up strategy with negative organic growth. J2 has been buying money-losing commoditized cloud computing companies, combining them with a non-performing digital media strategy to inflate its top line, as EBIDTA runs in place.” Though the stock has recovered from that drop over the last few months, it is still trading down by 17% year-to-date. On August 3, the company hiked its quarterly dividend payment by 3% to $0.345 per share, which currently translates into an annual dividend yield of 1.94%. Billionaire Ken Fisher‘s Fisher Asset Management also upped its stake in J2 Global Inc (NASDAQ:JCOM) during the second quarter, by 3% to 140,924 shares.

Follow J2 Global Inc. (NASDAQ:JCOM)
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#4. salesforce.com, inc. (NYSE:CRM)

 – Shares Owned by Rail-Splitter Capital Management (as of June 30): 165,158

 – Value of Holding (as of June 30): $13.12 Million

salesforce.com, inc. (NYSE:CRM) was another tech stock in which Rail-Splitter Capital Management made a small increase to the size of its position during the second quarter, upping it by 4%. salesforce.com, inc. (NYSE:CRM)’s stock took a big hit during the meltdown in the equity markets at the beginning of 2016. However, it bounced back fairly quickly and currently trades with year-to-date gains of 2.15%. In a regulatory filing submitted on August 1, the company revealed that it has acquired cloud word-processing and document-editing service, Quip, for $528 million in an all-stock deal, which was far lower than the $750 million figure initially reported by TechCrunch. Barely two months before this acquisition, salesforce.com, inc. made its largest acquisition ever by agreeing to acquire Demandware in a $2.8 billion deal. Citing the company’s aggressive organic and inorganic growth strategy, most analysts who track the stock are currently bullish on it, including analysts at Stephens, who initiated coverage on the stock with a ‘Buy’ rating on August 2. Columbus Circle Investors was one of the hedge funds that initiated a stake in salesforce.com, inc. during the second quarter, purchasing 742,906 shares of the company.

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Rail-Splitter’s top-three tech picks are revealed on the next page.

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