In this article we will take a look at Jim Cramer’s stock picks in the technology sector. Jim Cramer used to own a hedge fund, Cramer & Co, which he founded in 1987. Between 1988 and 2000 the fund only had one year of negative returns. It returned 47% in 1999 and 28% in 2000, beating the market by 38 percentage points. Cramer generated an average return of 24% per year during his tenure with the fund. Today, Jim Cramer is the host of CNBC’s Mad Money. Cramer expresses his views on stocks during his TV shows, which has helped many ordinary investors who watch his show daily on TV to make their own investments. Jim Cramer also owns a charitable trust and purchases some of the stocks that he recommends on TV for this trust. Here are Jim Cramer’s stock picks in the technology sector.
EMC Corporation (EMC) is the largest technology position in Cramer’s charitable trust. Cramer owns 4,700 shares of EMC, which are worth about $124,000. EMC has an average analyst recommendation score of 1.80 (1=strong buy, 2=buy, 3=hold, 4=sell, 5=strong sell). We agree with the analysts. However, the company is also facing a lot of competition and pricing pressure in the storage segment. But we think these risks are offset by its leading position in the market. EMC also has a strong balance sheet and a record of generating consistent free cash flow. EMC is also quite popular among hedge funds tracked by us. At the end of the third quarter, there were 37 hedge funds with EMC positions. For example, billionaire Ken Fisher is the most fund manager about EMC. Fisher Asset Management had $461 million invested in EMC at the end of September. Bill Miller’s Legg Mason Capital Management also had $170 million invested in this stock.
Cramer also likes Broadcom Corp (BRCM). His charitable trust owns 2,900 shares of BRCM, which are worth about $109,000. BRCM has an average analyst recommendation score of 2.0. The company, focusing on making integrated and multifunctional chips, is increasing its market share in fast growing markets. It also has reasonable debt levels, strong cash flow from operations, and growing profit margins. The company’s debt-to-equity ratio is only 0.18, indicating that the company is very successful in managing its debt. On the other hand, the semiconductor industry is cyclical. BRCM also has greater dependence than most other companies on stock-based compensation. As a result of this we see very large insider sales in the company. We also don’t like the stock’s high PE ratio. There were 29 hedge funds with BRCM positions at the end of September. Bain Capital’s Brookside Capital had more than $200 million invested in BRCM. Ken Griffin, Steven Cohen, and Joe Dimenna were also bullish about this stock. We think Apple is a better bet than BRCM, that’s why we don’t recommend it.
Apple Inc (AAPL), International Business Machines Corp (IBM), Juniper Networks Inc (JNPR), and AT&T Inc (T) round up Jim Cramer’s stock picks in the technology sector. Cramer invests relatively less in these four positions, compared with the amount he invests in EMC and BRCM. Among these four stocks, AAPL is the most popular one among hedge funds. As of September 30, 2011, there were 125 hedge funds with AAPL positions. For instance, Stephen Mandel’s Lone Pine Capital had $785 million invested in AAPL. Another tiger cub Chase Coleman was also bullish about AAPL. His Tiger Global Management LLC reported to own $646 million worth of AAPL shares. We like technology stocks. We think technology stocks are undervalued as a sector. Apple is our favorite stock in this list. It has more than $100 billion in net cash and the stock’s forward PE ratio is around 10 after adjusting for its net cash position. This is an extremely low valuation for a stock that is expected to increase its earnings by 20% annually over the next 5 years.
Warren Buffett doesn’t like Apple as a long-term investment but he initiated a $10+ billion position in IBM last year. IBM’s forward PE ratio of 13 is also low for a company that’s expected to grow its earnings by more than 10% annually. Nevertheless, we think Apple will outperform IBM over the next 5 years.