The Smart Money is Hoarding Shares of These 10 Technology Stocks, Part 1

Technology is one of the biggest growth industries in modern times. Whereas it can take years or even decades for companies in other sectors to achieve monumental growth, under the right conditions, tech startups can grow into unicorns, and from unicorns into giants, in minimal time. In this article, we take a closer look at some of the smart money’s favorite tech stocks, which tend to be small-cap stocks and could have the same potential to take off in the near future. These stocks are Loral Space & Communications Ltd. (NASDAQ:LORL), ViaSat, Inc. (NASDAQ:VSAT), InterXion Holding NV (NYSE:INXN), Sunedison Inc (NYSE:SUNE), and PMC-Sierra Inc (NASDAQ:PMCS). Be sure to check out part two of the list for five more tech stocks that elite investors are cornering the market on.

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.7% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

#5 PMC-Sierra Inc (NASDAQ:PMCS)

 – Number of Hedge Fund Holders (as of September 30): 34
– Total Value of Hedge Fund Holdings (as of September 30): $540 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 41.20%

With the era of cheap debt rapidly coming to an end and the semiconductor industry badly in need of consolidation to firm up margins and raise EPS, Microsemi Corporation (NASDAQ:MSCC) agreed to buy PMC-Sierra Inc (NASDAQ:PMCS) in late November for $2.5 billion in a deal that will net PMC shareholders $9.22 in cash and 0.0771 Microsemi shares for each share of PMC-Sierra. Margins of the combined company should improve, as management anticipates the merger to yield over $100 million in annual synergies and increase non-GAAP EPS by as much as $0.60 within twelve months of the deal closing.

#4 Sunedison Inc (NYSE:SUNE)

 – Number of Hedge Fund Holders (as of September 30): 73
– Total Value of Hedge Fund Holdings (as of September 30): $1.06 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 46.80%

Because of liquidity concerns, shares of Sunedison Inc (NYSE:SUNE) are down by over 80% year-to-date. Analysts are still bullish, however, as Deutsche Bank has a ‘Buy’ rating with a $9 price target on the stock, while Bank of America has a ‘Buy’ rating and a $12 price target. Analysts believe Sunedison can make it past its liquidity troubles and the recent news certainly isn’t proving the analysts wrong. Earlier in the week, SunEdison amended its Vivint Solar Inc (NYSE:VSLR) acquisition, which has been pointed to as the straw that broke the liquidity camel’s back. The amended deal with Blackstone will allow SunEdison to pay $2.00 less in cash per share and $0.75 more in stock per share. SunEdison also recently sold 333 MW of wind plants in Maine to Terra Nova Renewable Partners, a joint venture formed with investors of JPMorgan Asset Management, in a move that will raise $209 million in liquidity.

#3 InterXion Holding NV (NYSE:INXN)

 – Number of Hedge Fund Holders (as of September 30): 31
– Total Value of Hedge Fund Holdings (as of September 30): $881.81 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 46.90%

Nine analysts have a ‘Buy’ rating, and four have a ‘Hold’ rating on InterXion Holding NV (NYSE:INXN), with a price target of $35.00 per share between them. The analysts’ consensus price target suggests that shares of the leading provider of co-location data center services have potential upside of 20%, or about twice the expected average annual return of the S&P 500. The buy side is bullish as well, with 31 elite funds owning over 46% of the European company’s float. Shares of the tech company are up by 6.62% year-to-date.

#2 ViaSat, Inc. (NASDAQ:VSAT)

 – Number of Hedge Fund Holders (as of September 30): 12
– Total Value of Hedge Fund Holdings (as of September 30): $1.55 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 50.20%

Although ViaSat, Inc. (NASDAQ:VSAT), a leading provider of satellite and wireless networking applications, reported disappointing second quarter of fiscal year 2016 results on November 9. Its EPS of $0.30 on revenue of $353.33 million each missed estimates, by $0.05 per share and $10.3 million, respectively. Nonetheless, the company’s future is still bright, with analysts expecting it to grow EPS by an average annual rate of 25% for the next five years. ViaSat has some big name hedge fund believers, including Seth Klarman‘s Baupost Group, who owned 11.53 million shares at the end of September, good for 12.35% of the elite value investor’s equity portfolio.

#1 Loral Space & Communications Ltd. (NASDAQ:LORL)

 – Number of Hedge Fund Holders (as of September 30): 25
– Total Value of Hedge Fund Holdings (as of September 30): $834.06 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 57.10%

Although Loral Space & Communications Ltd. (NASDAQ:LORL) shares are down by more than 50% year-to-date, plenty of smart money funds are still bullish on the company. 25 funds within our database were long 57.1% of Loral Space’s float as of the latest 13F reporting period. Among the bullish funds are legendary macro investors Soros Fund Management, the family office founded by George Soros, and Omega Advisors, led by Leon Cooperman, both of which owned more than 1.0 million shares of Loral at the end of the third quarter.

Disclosure: None