In this article, we discuss the 10 best tech stocks to buy now according to Totem Point Management.
Neal Nathani and Darren Dinneen’s Totem Point Management is a New York-based investment firm that was founded in 2013 with seed money from Maverick Capital. Mr. Nathani, the fund’s portfolio manager, spent more than a decade working for the Tiger family of funds, while Mr. Dinneen previously worked as an analyst at H Partners Management.
Totem Point Management focuses primarily on tech stocks that are undergoing secular change and maintains a relatively concentrated portfolio. The fund is long-biased, though it has also found increasing success in identifying alpha-generating themes on the short side of its portfolio.
Microsoft Corporation (NASDAQ:MSFT), Marvell Technology Group Ltd. (NASDAQ:MRVL), and Alphabet Inc. (NASDAQ:GOOG) are among the favorite tech stocks of Totem Point Management, whose founding partners began their careers in the tech space.
Since its inception in August 2013, the Totem Point Master Fund Ltd. has delivered a compound annual return of 7.78% through March 2020. The fund was getting into a solid groove before the pandemic hit, with three straight years of double-digit returns before losing over 10% in the first quarter of 2020. Totem Point held assets under management of over $309 million as of March 30, 2021. At the end of the third quarter of 2021, Totem Point’s 13F portfolio contained 15 long positions valued at $154 million, the vast majority of which were tech stocks. We’ll look at the fund’s top ideas in the tech industry in this article.
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Now then, let’s check out the 10 Best Tech Stocks to Buy Now According to Totem Point Management, which includes the likes of Microsoft Corporation (NASDAQ:MSFT), Marvell Technology Group Ltd. (NASDAQ:MRVL), and Alphabet Inc. (NASDAQ:GOOG). Note that all hedge fund data is based on the exclusive group of 800+ funds tracked by Insider Monkey as part of our market-beating investment strategy.
10 Best Tech Stocks to Buy Now According to Totem Point Management
10. Twilio Inc. (NYSE:TWLO)
Totem Point Management’s Stake Value: $9,230,000
Percentage of Totem Point Management’s 13F Portfolio: 6.01%
Number of Hedge Fund Holders: 96
Cloud communications software provider Twilio Inc. (NYSE:TWLO) kicks off the list of best tech stocks to buy now according to Totem Point Management, as the fund owned 28,930 TWLO shares on September 30, adding a net total of 1,283 shares to its position during the quarter. Twilio has grown extremely popular among hedge funds in recent quarters, as there’s been a 71% jump in ownership of the stock since the end of Q1 2020.
Twilio Inc. (NYSE:TWLO) has been highly successful in growing its revenue, which jumped by 65% in the first nine months of 2021 compared to the same period a year earlier, but its 73% surge in operating expenses wiped out any potential earnings benefits from that sales increase. While strong revenue growth is likely to continue, analysts are skeptical about when Twilio Inc. (NYSE:TWLO) will actually begin turning a GAAP profit, with the consensus being that it won’t happen until at least 2025.
9. Analog Devices, Inc. (NASDAQ:ADI)
Totem Point Management’s Stake Value: $9,258,000
Percentage of Totem Point Management’s 13F Portfolio: 6.02%
Number of Hedge Fund Holders: 74
Analog Devices, Inc. (NASDAQ:ADI) is the first of several chipmakers to appear among the top tech stock picks of Totem Point Management, though the fund did unload 35% of its ADI position during Q3. That left it with a stake of 55,280 shares valued at $9.26 million as of September 30. Analog Devices has also proven wildly popular among hedge funds lately, as there’s been a 42% jump in ownership of the stock during the previous two quarters.
In its Q3 2021 investor letter, Madison Funds discussed Analog Devices, Inc. (NASDAQ:ADI)’s huge growth potential in the electric vehicle space, noting that the company’s VP of Automotive Mark Gill had previously stated that the company earns nearly 150% more per fully equipped EV than it does for a similar combustion vehicle. The fund is also high on Analog Devices, Inc. (NASDAQ:ADI)’s EV battery management system, stating that though it comprises just 1% to 1.5% of the company’s product mix, it could contribute close to an additional point in top line growth annually as EV production continues to grow.
Madison Funds, an investment management firm, published its “Madison Investors Fund” third-quarter 2021 investor letter and mentioned Analog Devices, Inc. (NASDAQ:ADI). Here‘s what the fund said:
“At its 2017 investor day, Analog Device’s VP of Automotive, Mark Gill, described how the company’s content on well-equipped electric vehicles was $600 per car compared to $250 per car for the traditional 2017 internal combustion engine car. Since then, Analog has highlighted the success of its EV battery management systems (BMS) product nearly every quarter. The BMS product is hardware and software that manages the power into and out of the battery systems. It’s the brains of the operation. Analog says it’s on its fifth generation BMS product, that it has the no. 1 market share in high voltage products, and that it is on 5 of the top 10 selling EVs. While we think that the BMS product is just 1 to 1.5% of Analog’s product mix, we think that it could add nearly a point of revenue growth per year to the company’s top-line given the expected ramp in EV production. This is a material amount of growth atop an already nicely growing company revenue line.”
8. Sea Limited (NYSE:SE)
Totem Point Management’s Stake Value: $9,645,000
Percentage of Totem Point Management’s 13F Portfolio: 6.28%
Number of Hedge Fund Holders: 117
Totem Point has been a Sea Limited (NYSE:SE) shareholder since the third quarter of 2020 and held 30,261 shares of the e-commerce and mobile gaming juggernaut a year later. Hedge funds have certainly taken note of the company, which has been one of the top performers on the market in recent years, as hedge fund ownership of SE has increased 8-fold since the end of 2018. Sea Limited (NYSE:SE) shares have hit a rough patch in recent months, however, as interest rate hikes have caused investors to flee richly-valued assets in favor of more durable names. There also appears to be some skepticism about Sea’s aggressive expansion plans, which could weigh on the company’s already struggling bottom-line.
Sea Limited aims to use its Southeast Asian growth template of cross-selling its other services to the players of its wildly popular Free Fire mobile game in regions like Europe, India, and Latin America, where the game is also popular. Free Fire hit a record peak of over 150 million daily active users last year. Sea Limited (NYSE:SE) pulled in $6.7 billion in sales during the first nine months of 2021, a 140% year-over-year jump.
ClearBridge Investments, an investment management firm, published its “Large Cap Growth Strategy” third quarter 2021 investor letter and mentioned Sea Limited (NYSE:SE). Here‘s what the fund said:
“Over the last year, we have sought to improve the up capture of the portfolio by expanding exposure to the select bucket of companies growing revenues and earnings at meaningfully above-average rates and targeting large total addressable markets. Newer names in the select bucket like Sea Limited have been strong contributors to relative performance over this period. We believe that owning a broader group of IT and Internet companies with different drivers to the businesses helps manage some of the risk in this relatively more expensive subsector.”
7. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Totem Point Management’s Stake Value: $9,811,000
Percentage of Totem Point Management’s 13F Portfolio: 6.38%
Number of Hedge Fund Holders: 65
Two more chipmakers round out the first part of this list, beginning with Advanced Micro Devices, Inc. (NASDAQ:AMD), which Totem Point has been a shareholder of since the first quarter of 2019. The fund sold off 40% of its AMD stake in Q3, leaving it with 95,347 shares valued at $9.81 million on September 30.
Advanced Micro Devices, Inc. (NASDAQ:AMD) has been another one of the better-performing stocks over the past five years, gaining just over 800%. Hedge funds have somewhat missed the boat, as there’s been a modest 41% increase in hedge fund ownership of AMD over the past five years.
Investment firm Alger discussed Advanced Micro Devices, Inc. (NASDAQ:AMD) in the Alger Mid Cap Focus Fund’s Q4 2021 investor letter and sounded upbeat about the company’s prospects for 2022, which it believes could be another strong year for the company with market share gains against many of its product offerings, thanks in part to rival Intel struggling to bring new offerings to the market. The fund further notes that AMD is likely to generate further gross margin expansion. AMD grew sales by 68% in 2021 and anticipates that revenue will rise by another 31% this year.
Alger, an investment management firm, published its “Alger Mid Cap Focus Fund” fourth quarter 2021 investor letter and mentioned Advanced Micro Devices, Inc. (NASDAQ:AMD). Here‘s what the fund said:
“Advanced Micro Devices (AMD) designs and sells CPUs and graphics processing units (GPUs) for desktops, notebooks and gaming consoles, as well as for datacenter and professional environments. AMD’s key product families include Ryzen processors for personal computers, Radeon processors for graphics and EPYC processors for servers. AMD is gaining market share as it is undergoing a major server product upgrade cycle while its only competitor (Intel) is struggling to deliver new offerings. AMD shares outperformed in the most recent quarter in response to the company’s third quarter results substantially exceeding consensus expectations and management providing very strong guidance despite ongoing supply chain constraints. The updated revenue guidance for full-year 2021 is nearly $600 million above consensus and $2.7 billion above the initial fiscal year 2021 guidance provided by the company in January. AMD also repurchased approximately $750 million in stock during the quarter. Management’s commentary suggests that AMD is well positioned for 2022 to be another very strong year with continued market share gains across product offerings, a strong data center market, improving traction in its enterprise segment and no slowdown in the gaming console business. Management also implied it will make further progress in the graphics business. In addition, AMD is currently positioned to generate gross margin expansion resulting from an improving product mix and strong operating expense leverage despite the company increasing its marketing budget and spending for research and development.”
6. NVIDIA Corporation (NASDAQ:NVDA)
Totem Point Management’s Stake Value: $11,777,000
Percentage of Totem Point Management’s 13F Portfolio: 7.66%
Number of Hedge Fund Holders: 83
NVIDIA Corporation (NASDAQ:NVDA) closes out the first part of this list, with 56,848 shares of the chipmaker being held in Totem Point’s 13F portfolio as of September 30. The fund has been a shareholder of NVDA since Q1 2020, during which time its shares have gained over 300%. One of the 5 Metaverse Stocks to Invest In thanks to its virtual reality Omniverse platform, NVIDIA Corporation (NASDAQ:NVDA) could be in for a rough summer thanks to its chips’ usage in another new medium, cryptocurrencies. Equity research firm New Street predicted that a “crypto winter” could batter demand for Nvidia cards in the near term due to disgruntled crypto miners selling off their GPUs as the cryptocurrency market deteriorates.
The firm does however predict a quick bounce back for NVIDIA Corporation (NASDAQ:NVDA)’s sales and its stock price, characterizing the predicted crypto crisis as a buying opportunity for investors. Nvidia nailed down adjusted earnings growth of 60% year-over-year in its latest quarter, which was the firm’s Q3 of its fiscal year 2022, with its data center and gaming segments being strong earnings drivers. See where Microsoft Corporation (NASDAQ:MSFT), Marvell Technology Group Ltd. (NASDAQ:MRVL), and Alphabet Inc. (NASDAQ:GOOG) rank among Totem Point Management’s top tech stock picks by clicking the link below.
5. Alphabet Inc. (NASDAQ:GOOG)
Totem Point Management’s Stake Value: $11,967,000
Percentage of Totem Point Management’s 13F Portfolio: 7.79%
Number of Hedge Fund Holders: 156
The class C shares of Alphabet Inc. (NASDAQ:GOOG) are first up on the second part of our list of Totem Point Management’s top tech stock picks. The fund owned 4,490 of them after trimming its position by 16% during the third quarter. Alphabet is the most popular stock among the hedge funds tracked by Insider Monkey, with 356 funds owning either one or both of the tech giant’s class of shares.
It’s hard to imagine Alphabet Inc. (NASDAQ:GOOG) being considered under-appreciated given its aforementioned popularity among top money managers, but that’s precisely what Weitz Investment Management called the company in its Q4 2021 investor letter. The fund noted that both Alphabet and Meta Platforms, Inc. (NASDAQ: FB) have had their valuations impacted due to regulatory scrutiny. While the fund considers the threat of punitive action against the companies to be a very real one, it can’t foresee any action taken against them to be so damaging as to characterize their five-year outlooks as anything but well above-average.
Alphabet Inc. (NASDAQ:GOOG) beat revenue expectations in Q4 by a healthy $3 billion, growing sales by a hefty 32% year-over-year to $75.3 billion, which resulted from strong online consumer activity and advertiser spending. Google Cloud also continued to outperform the company’s top-line growth, growing revenue by 45% during the quarter to $4.5 billion.
Weitz Investment Management, an investment management firm, published its “Value Fund” fourth quarter 2021 investor letter and mentioned Alphabet Inc. (NASDAQ:GOOG). Here‘s what the fund said:
“A couple of other platform companies deserve a mention as well. Meta Platforms and Alphabet have both been under regulatory scrutiny that has affected their valuations. The threats of punitive action are real, but we have tried to be imaginative about how onerous any fines, rule changes or forced divestitures might be, and we believe that the fiveyear outlook for each is well above average under almost any scenario. So, we include these two in the list of the under-appreciated.”
4. Marvell Technology Group Ltd. (NASDAQ:MRVL)
Totem Point Management’s Stake Value: $12,243,000
Percentage of Totem Point Management’s 13F Portfolio: 7.97%
Number of Hedge Fund Holders: 45
Totem Point cut the size of its Marvell Technology Group Ltd. (NASDAQ:MRVL) position by 23% during Q3, to 202,994 shares, though it remained the fund’s favorite chipmaker among a slew of other chipmakers found in its 13F portfolio.
One of the 5 Best Stocks to Buy for 2022 According to Analysts, Marvell Technology Group Ltd. (NASDAQ:MRVL) was given price hikes by several prominent analysts following its Q3 results. The company ranked as Needham’s top semiconductor stock pick, with the firm predicting 30% organic revenue growth for the company in the calendar year 2022, outpacing all of its large-cap peers thanks in part to its focus on the fastest-growing markets. Marvell Technology Group Ltd. (NASDAQ:MRVL) also ranks as a top semiconductor stock pick by JPMorgan, which believes the market is discounting the industry’s strong fundamentals as well as its tight supply chain dynamics.
3. Microsoft Corporation (NASDAQ:MSFT)
Totem Point Management’s Stake Value: $12,978,000
Percentage of Totem Point Management’s 13F Portfolio: 8.45%
Number of Hedge Fund Holders: 250
Totem Point was trimming many of its positions during Q3, ostensibly so it could reinvest that money in its one big purchase of the quarter, Microsoft Corporation (NASDAQ:MSFT), in which the fund initiated a new position of 46,036 shares valued at $12.98 billion as of September 30. A net total of 13 hedge funds tracked by Insider Monkey added MSFT to their 13F portfolios in Q3 following two quarters of declining hedge fund ownership.
Microsoft Corporation (NASDAQ:MSFT) has greatly outperformed the market over the past five years, gaining over 350%. Despite that, there is undoubtedly room for sustained share price appreciation given its impressive revenue and earnings growth, the former hitting 20% in Q2 of the company’s fiscal 2022 year, while operating profit grew by 24%.
Microsoft Corporation (NASDAQ:MSFT)’s intelligent cloud services have grown to become the company’s biggest segment and its sales growth continues to outpace Microsoft’s overall revenue growth. With Microsoft’s margins also expanding, the company is poised to continue growing earnings by leaps and bounds for as long as it can maintain 20%+ revenue growth, which could be for several years yet.
Alger, an investment management firm, published its “Alger Spectra Fund” fourth quarter 2021 investor letter and mentioned Microsoft Corporation (NASDAQ:MSFT). Here‘s what the fund said:
“Class A shares of the Alger Spectra Fund underperformed the Russell 3000 Growth Index during the fourth quarter of 2021. Microsoft Corp. was among the top contributors to performance. Microsoft is a Positive Dynamic Change beneficiary of corporate America’s transformative digitization. Microsoft’s CEO believes technology spending as a percent of GDP is likely to jump from about 5% today to 10% in a few years and that Microsoft will continue to take market share Microsoft’s enterprise cloud product, Azure, is rapidly growing and accruing market share. Microsoft reported that Azure grew 50% inthe past quarter. This high unit volume growth is a primary driver of the company’s higher share price, but strong operating execution has enabled margin expansion that has also helped to increase forward earnings estimates. We believe Microsoft’s subscription-based software offerings and cloud computing services have a durable growth profile because they enhance customers’ growth initiatives and help them to diminish costs. Additionally, investors appreciate Microsoft’s strong free cash flow generation and its return of cash to shareholders in the form of dividends and share repurchases.”
2. Bill.com Holdings, Inc. (NYSE:BILL)
Totem Point Management’s Stake Value: $14,880,000
Percentage of Totem Point Management’s 13F Portfolio: 9.68%
Number of Hedge Fund Holders: 65
Bill.com Holdings, Inc. (NYSE:BILL) ranks second on the list, as Totem Point owns 55,742 BILL shares as of September 30 valued at $14.88 million. Despite unloading 34% of its holding during Q3, Bill.com now accounts for 9.69% of the value of Totem Point’s 13F portfolio compared to 7.84% a quarter earlier thanks to shares gaining a hefty 45% during Q3.
Bill.com Holdings, Inc. (NYSE:BILL)’s shares hit a recent rough patch, however, tumbling by nearly 25% in January as growth stocks were widely sold off by investors. Shares have taken a sharp turn back up in February after the company’s cloud-based business finance software propelled it to enormous 190% revenue growth during the company’s latest quarter, outpacing the already impressive 150% growth from a quarter earlier. After dropping to as low as 35x, its price-to-sales ratio has rebounded to once again sit above 50x.
As with many growth stocks, Bill.com Holdings, Inc. (NYSE:BILL) is not yet profitable, which is likely to leave its shares at the mercy of similar market dynamics to what they experienced in January as overall economic growth slows and interest rates rise.
Alger, an investment management firm, published its “Alger Mid Cap Focus Fund” fourth quarter 2021 investor letter and mentioned Bill.com Holdings, Inc. (NYSE:BILL). Here‘s what the fund said:
“Bill.com Holdings, Inc., was among the top detractors from performance. Bill.com provides cloud-based software solutions that simplify, digitize, and automate complex back-office financial operations for small and medium size businesses. Its software helps customers to generate and process invoices, streamline approvals, send and receive payments, synchronizing data with their accounting system and manage their cash.”
1. NortonLifeLock Inc. (NASDAQ:NLOK)
Totem Point Management’s Stake Value: $15,253,000
Percentage of Totem Point Management’s 13F Portfolio: 9.93%
Number of Hedge Fund Holders: 34
NortonLifeLock Inc. (NASDAQ:NLOK) remained Totem Point’s top stock pick for the seventh straight quarter despite the fund selling off 11% of its NLOK holding during the third quarter. That left it with 602,881 shares worth $15.25 million at the end of Q3. While Totem Point has tremendous conviction in NortonLifeLock, overall hedge fund ownership has declined by 29% since the end of Q1 2019.
NortonLifeLock Inc. (NASDAQ:NLOK), which was formerly known as Symantec, supplies cybersecurity and infrastructure software to 80 million users in more than 150 countries. During Q3 of the company’s 2022 fiscal year, Norton grew revenue and bookings by 12% and 11% respectively, while earnings further outpaced both, coming in at 16%. The company’s Norton 360 platform hit 14 million customers during the quarter, up by more than 1 million since May 2021, while retention rates remained above 85%.
NortonLifeLock Inc. (NASDAQ:NLOK) announced last week that it now anticipates closing its pending merger with antivirus application developer Avast later this month, well ahead of the previously anticipated closing of mid-2022. The deal will add a sizable 435 million customers under Norton’s umbrella of cybersecurity services.
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Disclosure: None. 10 Best Tech Stocks to Buy Now According to Totem Point Management is originally published at Insider Monkey.
