Edinburgh Partners Likes These Four Tech Stocks, but Dumps Microsoft

One of Scotland’s largest investment houses, Edinburgh Partners was founded in 2003 and is currently run by Sandy Nairn, a co-founder of the firm and a veteran of the industry. Edinburgh Partners has approximately $11 billion in assets under management and its equity portfolio was valued at more than $887 million at the end of the first quarter of 2016. The portfolio contains a large number of consumer discretionary and technology stocks, which amount to 42% and 30% of the portfolio respectively. Insider Monkey calculates a fund manager’s stock picking ability by looking at the weighted average returns of the fund’s long positions in companies with a market cap above $1 billion, based on the size of those positions at the beginning of each quarter. In the case of Edinburgh Partners 38 of the 40 positions reported as of the end of the fourth quarter have qualified under our requirements and generated a return of 2.7% during the first quarter of 2016. In this article we’ll take a look at five top tech stocks from Edinburgh Partners’ equity portfolio heading into the second quarter.

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Top Tech Holding

During the first quarter, Sandy Nairn and his team decided to increase their stake in QUALCOMM, Inc. (NASDAQ:QCOM) by 5% to 1.65 million shares worth roughly $84.4 million. Hedge fund sentiment towards Qualcomm was unaffected during the 2015 fourth quarter, with the number of long positions staying unchanged at 68. This makes the stock one of the most popular among elite hedge funds. Billionaire Ken Fisher also likes QUALCOMM, Inc. (NASDAQ:QCOM) and has boosted his investment in the company by 2% over the first quarter to 9.55 million shares valued at $488 million. Qualcomm opened lower today as investors were disappointed by the company’s outlook for the fiscal third quarter. The chip maker reported second quarter results on Wednesday after the market close, beating analysts estimates. Revenues came in at $5.55 billion, down by 19.5% year over year and above the consensus of $5.34 billion. Adjusted earnings stood at $1.04 per share, higher than analysts’ projections of $0.96 per share. QUALCOMM, Inc. (NASDAQ:QCOM)’s forward guidance, however, fell short of expectations, as the management predicts third quarter earnings to range between $5.2 billion and $6 billion, while earnings are expected to be between $0.90 and $1 per share. Analysts, on the other hand, were looking for $5.6 billion in revenues and earnings per share of $1.02.

In its latest 13F filing, Edinburgh Partners reported a holding in Harman International Industries Inc./DE/(NYSE:HAR), which was increased by 11% on the quarter to 897,527 shares valued at $79.9 million. At the end of December 2015, approximately 9% of Harman International’s common stock was held by 27 funds from our database. Eric Bannasch’s Cadian Capital has reported a new position in Harman International Industries Inc./DE/(NYSE:HAR) as of the end of the fourth quarter, which amounted to 950,443 shares. The company is scheduled to release its next financial report on April 28 and analysts are expecting revenues of $1.68 billion and earnings of $1.43 per share. Harman International Industries Inc./DE/(NYSE:HAR) is currently trading at a trailing Price-to-Earnings (P/E) ratio of 17.98, in line with the industry average of 17.10. Since the start of 2016, Harman International’s stock had fallen by 29%, before it registered a rally and is currently down by just 7% year-to-date.

Nairn and his team sought to reduce exposure to Alphabet Inc (NASDAQ:GOOGL) during the first quarter of 2016. Edinburgh Partners’ holding of Class C shares (GOOG) was reduced by 3% to 74,122 shares valued at $55.2 million, while its holding of Class A shares (GOOGL) was trimmed by 2% to 63,335 shares worth $48.3 million. What makes this move curious, is the positive general hedge fund sentiment towards the tech giant, which gained a considerable boost over the fourth quarter, making Alphabet the second most popular stock among the funds we track. The number of hedge fund holdings of Class C shares rose to 142, from 119 at the end of September, while the number of holdings of Class A shares surged to 154, from 129 reported three months before. Alex Snow‘s Lansdowne Partners boosted its ownership of Alphabet Inc (NASDAQ:GOOGL) Class A shares to approximately 1.38 million shares held at the end of 2015. Alphabet Inc (NASDAQ:GOOG) has recently reported first quarter results that were below market expectations. The Mountain View-based giant posted $20.26 billion in revenue and adjusted earnings of $7.50 per share. The consensus among analysts was $7.97 a share on the back of $20.37 billion in revenue. “Our Q1 results represent a tremendous start to the year with 17 percent revenue growth year on year and 23 percent growth on a constant currency basis,” said Ruth Porat, CFO of Alphabet.

Trimming a long term bet.

Edinburgh Partners’ stake in Cisco Systems, Inc. (NASDAQ:CSCO) was trimmed by 4% to some 2.85 million shares worth approximately $81.1 million. The fund holds this position since the first quarter of 2008, making it a long term investment. Ken Fisher’s Fisher Asset Management cut its holding in Cisco Systems, Inc. (NASDAQ:CSCO) to 15.4 million shares worth $429 million at the end of March. The popularity of Cisco among the hedge funds followed by Insider Monkey has cooled down during the fourth quarter, with the number of long hedge fund positions dropping to 60 at the end of December, from 67 a quarter before. Analysts at Morgan Stanley have recently reiterated their ‘Hold’ rating on Cisco Systems, Inc. (NASDAQ:CSCO). At the beginning of April, the stock was upgraded by JPMorgan Chase & Co to ‘Neutral’ from ‘Underweight’ and the price target was increased to $27.50 per share, from the previous target of $17.00 per share.

Time To Dump Microsoft?

One of the most notable changes done by Edinburgh Partners’ management was the liquidation of its stake in Microsoft Corporation (NASDAQ:MSFT). Although the fund continues to hold approximately 2,000 shares, 99% of the shares it reported at the end of December 2015 were sold during the first quarter. This follows a 45% reduction reported at the end of the fourth quarter. Jeffrey Ubben‘s ValueAct Capital also reduced exposure to Microsoft Corporation (NASDAQ:MSFT), having indicated ownership of 56.6 million shares, down by 25% over the fourth quarter. In general, Microsoft Corporation (NASDAQ:MSFT) is well liked among the top hedge funds tracked by Insider Monkey and the number of long positions reported at the end of December 2015 reached 140, up from 113 at the end of the third quarter. For its fiscal third quarter, Microsoft reported EPS of $0.62, missing the estimates of $0.64, while its revenue of $22.08 billion was slightly lower than analysts’ projections. The company was affected by a strong US dollar and a declining PC market, but its Intelligent Cloud business inched up by 8% in constant currency terms, boosted by a 120% growth registered at Azure.

Disclosure: none.