Apple (AAPL), Western Digital (WDC): Should You Follow Sprott Asset Management Into Its Favorite Tech Stocks?

Sprott Asset Management is a Toronto-based alternative asset management firm founded by legendary precious metals trader and billionaire Eric Sprott in 1981. In January, Mr. Sprott retired from active fund management duties at the firm and now serves as its Chairman and Chief Investment Officer. Sprott Asset Management recently filed its 13F with the Securities and Exchange Commission for the reporting quarter ending September 30. The filing revealed that Sprott Asset Management’s U.S equity portfolio at the end of September was worth over $1.63 billion, a significant rise from the nearly $1.32 billion that it was worth at the end of June. Although stocks from the financial sector accounted for 65% of Sprott Asset Management’s U.S equity portfolio, stocks from the technology sector also accounted for a significant part of it. In previous articles we analyzed Sprott Asset Management’s top stock picks and top gold stock picks, and in this article we are going to take a closer look at the fund’s top tech stock picks.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

#5 Western Digital Corp (NASDAQ:WDC)

Shares Owned by Sprott Asset Management (as of September 30): 125,000 shares

Value of Holding (as of September 30): $9.93 Million

Sprott Asset Management added 7,000 shares of data storage solutions provider Western Digital Corp (NASDAQ:WDC) to its portfolio during the third quarter. Although the stock of Western Digital has been on a gradual decline since the start of the year and is currently trading down by 38.71% year-to-date, a significant portion of that decline came in October after the company announced that it would be acquiring rival SanDisk (NASDAQ:SNDK) in a deal valued at $19 billion or $86.50 per share. Experts and analysts are divided about the advantages of this deal. While one side argues that by acquiring SanDisk, Western Digital Corp (NASDAQ:WDC) will gain large market share in solid-state drives, the other side argues that Western Digital Corp is paying too large a sum for acquiring SanDisk to gain that market share. Western Digital Corp recently reported its financial results for its first quarter of fiscal year 2016 on October 28. EPS for the quarter came in at $1.56 on revenue of $3.36 billion, compared to EPS of $2.10 on revenue of $3.9 billion that it had reported for the same quarter last year. Ken Griffin’s Citadel Investment Group reduced its stake in the company by 30% to over 2.16 million shares during the second quarter.

#4 Verizon Communications Inc. (NYSE:VZ)

Shares Owned by Sprott Asset Management (as of September 30): 518,719 shares

Value of Holding (as of September 30): $22.57 million

Although shares of Verizon Communications Inc. (NYSE:VZ) cracked hard during the third quarter, the swift recovery they saw in October has returned them to trading nearly flat for the year. During the July-September period, Sprott Asset Management disposed of 1,150 shares of the company. On November 5, Verizon Communications Inc. (NYSE:VZ) announced a $400 million marketing and content deal with the National Basketball Association (NBA). According to the terms of the deal, Verizon will be able to bring daily NBA game highlights to its new mobile app Go90. The announcement of this deal came a day after Verizon announced that it will tie-up with Indian System Integrators to provide cloud computing services to MNCs based in the Asia Pacific region, Western Europe, the U.S and Japan. Verizon came out with better-than-expected third quarter numbers on October 20. It declared EPS of $1.04 on revenue of $33.20 billion, while analysts were expecting it to declare EPS of $1.02 on revenue of $32.94 billion. Iconic investor Warren Buffett‘s Berkshire Hathaway was the largest shareholder of the company at the end of June among the funds covered by Insider Monkey; it held slightly over 15 million shares as of June 30.

Sprott Asset Management’s top three teck stocks heading into the holiday period are disclosed on the next page.