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Micron, Western Digital, More: Hedge Funds’ Favorite Tech Stocks in the Mid-Cap Space

Given that hedge funds count the best of the best, including ivy league PHD’s as their employees, it often pays to examine how the smart money is positioned in certain stocks. Now that the latest 13F filing period has ended, we’ve poured over the data from the 749 hedge funds in our database that filed for the June 30 reporting period, and have taken note of the latest trends in how they’re positioned in stocks.

In this article, we’ll use that data to reveal their top-5 tech stocks picks in the mid-cap space, which are Micron Technology, Inc. (NASDAQ:MU), Western Digital Corp (NASDAQ:WDC), Lam Research Corporation (NASDAQ:LRCX), Commscope Holding Company Inc (NASDAQ:COMM), and Citrix Systems, Inc. (NASDAQ:CTXS). As a disclaimer, our definition of mid-cap is a company with a market cap of between $5.01 billion and $20 billion; some other sources use different definitions, including categorizing mid-caps as being between $2.01 billion and $10 billion.

Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 700 hedge funds, whose quarterly 13F filings we analyze and determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (see the details here).

board, chip, semiconductor

#5 Citrix Systems, Inc. (NASDAQ:CTXS)

– Number of Hedge Fund Shareholders (as of June 30): 45
– Total Value of Hedge Funds’ Holdings (as of June 30): $1.37 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 11.00%

Citrix Systems, Inc. (NASDAQ:CTXS) shares have done well ever since Paul Singer‘s Elliott Management sent a letter to Citrix’s Board of Directors last June, asking the company to engage in a plan that would bring fundamental and sustainable change to it by improving efficiency and spinning off non-core businesses. In the letter, Elliott Management disclosed that Citrix could achieve a stock price of $90-to-$100 per share by the end of 2016, which Citrix’s stock is now very close to. Elliott Management, which owns 4.43 million shares of Citrix as of July 26, and 44 other funds in our system were long the stock on June 30, with their positions accounting for 11% of Citrix’s float.

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#4 Commscope Holding Company Inc (NASDAQ:COMM)

– Number of Hedge Fund Shareholders (as of June 30): 47
– Total Value of Hedge Funds’ Holdings (as of June 30): $2.94 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 49.30%

After rallying sharply from its February lows, Commscope Holding Company Inc (NASDAQ:COMM) shares have recently retraced due to some profit taking. According to SEC filings, an affiliate of private equity fund Carlyle Group recently sold 10 million shares in a secondary offering, with the underwriter retaining the option to purchase an additional 1.5 million shares from Carlyle. Because it didn’t offer the shares, CommScope did not receive any proceeds from the sale, and existing shareholders did not see their shares diluted. Carlyle owns 17.8% of CommScope’s outstanding common stock following the offering, which will drop to 17.2% if the underwriter fully exercises its option to purchase another 1.5 million shares.

We’ll check out hedge funds’ three favorite mid-cap tech stocks on the second page.

#3 Lam Research Corporation (NASDAQ:LRCX)

– Number of Hedge Fund Shareholders (as of June 30): 47
– Total Value of Hedge Funds’ Holdings (as of June 30): $2.05 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 15.30%

Like the performance of many other semiconductor companies, Lam Research Corporation (NASDAQ:LRCX) shares have done well this year, rising by 18% year-to-date on the back of several solid earnings reports. If its merger with KLA-Tencor Corp (NASDAQ:KLAC) goes through, Lam’s management could conceivably unlock enough synergies to power solid performance for several more quarters. Investors may have to wait a little longer than expected for the synergies to materialize, however. Lam Research recently extended its merger timeline with KLA-Tencor to later than October 20 due to a slower-than-anticipated regulatory approval process. Jim Simons’ Renaissance Technologies raised its position in Lam Research by 752% to 926,456 shares at the end of the second quarter.

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#2 Western Digital Corp (NASDAQ:WDC)

– Number of Hedge Fund Shareholders (as of June 30): 48
– Total Value of Hedge Funds’ Holdings (as of June 30): $1.02 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 9.20%

Although Western Digital Corp (NASDAQ:WDC)’s management has said that 2016 would be a “transformative year” due to the need to integrate SanDisk’s operations into the company’s own, 48 funds in our database had a bullish position in Western Digital Corp (NASDAQ:WDC) at the end of the second quarter, up by six funds from the end of the previous quarter. Although hard disk drives are in secular decline, demand for hard drives from the cloud and the synergies derived from the SanDisk acquisition could help Western Digital beat expectations for the quarters to come.

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#1 Micron Technology, Inc. (NASDAQ:MU)

– Number of Hedge Fund Shareholders (as of June 30): 67
– Total Value of Hedge Funds’ Holdings (as of June 30): $1.16 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 8.10%

With 67 funds (up by 16 quarter-over-quarter) reporting owning shares of the semiconductor company as of the end of June, Micron Technology, Inc. (NASDAQ:MU) is the most popular mid-cap tech stock among the smart money set that matters to us. Although Micron’s third quarter of fiscal year 2016 was a bit disappointing, with a loss of $0.08 per share and revenue of $2.9 billion (down by 24.7% year-over-year), investors have bid up Micron shares to the tune of 14% due to the company’s cost-cutting initiatives, which should save more than $300 million in its fiscal year 2017.

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Disclosure: None

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