Mott Capital Scores on Semiconductors, Calls Netflix/Comcast Deal “A Game Changer”

Mott Capital is a thematic growth investing fund. Its founder Michael Kramer has an extensive trading experience and looks at themes in society to find out equity investment ideas. The fund typically follows a long term approach towards investing with a 3-5 years’ time frame. Approximately 65% of the clients are high net worth individuals.

In a letter sent to investors for the third quarter of 2016, Mr. Kramer stated the stock market should rally in the fourth quarter, as he does not think that the central banks will raise rates given the low inflation and growth expectations. Given below are few of his top holdings, including Netflix Inc. (NASDAQ:NFLX) which was added to the fund’s portfolio during the quarter. The fund thinks that a Netflix-Comcast deal could be “a game changer” and is bullish on NXP Semiconductors. Michael is also upbeat about the prospects of HAIN Celestial Group Inc. (NASDAQ:HAIN) despite its poor performance in recent times.

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NXP Semiconductors NV (NASDAQ:NXPI) is a semiconductor holding company catering to the needs of high-performance mixed-signal electronics. This company which has a presence in more than 35 countries, reported sales of $6 billion last year. The company provides innovative products for markets such as automobiles, cyber security, portables & wearables and the Internet of Things. For the second quarter of 2016, revenue increased sharply by 57% y/y to $2.37 billion. Reportedly, NXP Semiconductors is in talks to be acquired by San Diego based Qualcomm Inc. (NASDAQ:QCOM) for around $37 billion, but Mr. Kramer estimated that NXP could be valued at $40 billion or $120 per share. Due the rally on the back of a potential deal, NXP’s stock is up by more than 20% in the last three months and 16% year-to-date. NXP is also among the top performers in Mott Capital’s portfolio returning more than 30% in the third quarter. The number of funds tracked by Insider Monkey having a long position in this stock increased to 57 from 52 during the second quarter. 

Skyworks Solutions Inc. (NASDAQ:SWKS) manufactures analog semiconductors for automotive, broadband, wireless infrastructure & networking, GPS and other communication applications. The stock has shot up 21% since August this year. Mr. Kramer said in the letter that, similarly to NXP Semiconductors, Skyworks Solutions has also benefited from the M&A-related activity in the semiconductor space and the success of Apple’s iPhone 7 provided the stock with more lift. Mott Capital estimated that every iPhone contains around $7 worth of parts produced by Skyworks. Approximately 4.4% of the company’s stock was held by 33 hedge funds tracked by us at the end of June.

Netflix Inc. (NASDAQ:NFLX) was a new addition to Mott Capital’s portfolio during the quarter. Netflix Inc. (NASDAQ:NFLX) should benefit from the increasing growth of on demand video streaming. The company has signed a deal with Comcast to offer Netflix services on Comcast set top boxes and a content partnership with Liberty Global plc (NASDAQ:LBTYA). According to Michael Kramer, the Netflix-Comcast deal could be a game changer for the company. The stock is up by 9% since the beginning of the year and has returned more than 30% in the last one month alone. This $54 billion company has a subscriber base more than 86 million. It added 3.57 million new subscribers during the third quarter including 3.2 million international customers and expects to add another 5.2 million subscribers in the upcoming quarter. According to our data, 54 funds held shares of Netflix with a total value of $3.73 billion at the end of June.

Interesting read: The 5 Best Documentaries on Netflix You Must See

HAIN Celestial Group Inc. (NASDAQ:HAINhas been the worst performer in Mott Capital’s portfolio. In the last three months, the stock has lost more than 30%, owing to a flaw in revenue recognition. However, according to Mott Capital’s portfolio manager, it is a matter of the timing of revenue recognition and there is nothing fraudulent. The stock performance has started to show signs of improvement returning almost 3% in the last one month. A total of 23 funds from our database held shares of HAIN Celestial Group Inc. (NASDAQ:HAIN) at the end of June, up by four over the quarter. The aggregate value of their holdings surged by 63% on the quarter to $346 million.

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