We’ve already gone through our database of 13F filings for the third quarter of 2012 and identified the ten most popular stocks among hedge funds. We can also look at which stocks in specific industries or sectors are popular. Here are the ten stocks in the technology sector which had the largest number of hedge funds and other notable investors report positions at the end of September:
It’s logically the case that Apple Inc. (NASDAQ:AAPL)– which was the most popular stock among hedge funds, in general- would take the crown for the technology sector. Our records show 146 filers having a position in the stock at the end of the third quarter. Apple has rebounded slightly from its lows but still trades at only 13 times trailing earnings, and we think that it’s a good value. Billionaire Glenn Dubin’s Highbridge Capital Management bought shares during the quarter (find more stock picks from Highbridge Capital Management).
Google Inc (NASDAQ:GOOG) gained on Apple during the third quarter as several hedge funds initiated positions in the stock. Billionaire Kerr Neilson’s Platinum Asset Management and other funds also added shares to their existing holdings. Google isn’t as clear a value as Apple as the company has struggled to integrate Motorola Mobility Holdings, but any improvements at that business would create substantial opportunities.
96 filers in our database reported owning Microsoft Corporation (NASDAQ:MSFT), which is worrying investors as Windows 8 and the Surface tablet seem to be far from slam dunks. To some degree this is priced into the current valuation- the forward P/E is 8, suggesting that the market doesn’t believe analyst estimates- so there’s at least some chance of high reward from an investment. We’d still avoid the stock for now.
The last tech company to make our list of the ten most popular stocks was QUALCOMM, Inc. (NASDAQ:QCOM), with 77 hedge funds owning the stock. The communications equipment company has been seeing strong growth for a large cap, with revenue and earnings each up about 20% last quarter versus a year earlier. At 18 times trailing earnings it could qualify for “growth at a reasonable price” status.
Oracle Corporation (NASDAQ:ORCL) was another popular tech pick: 60 filers in our 13F database owned it at the end of the quarter. Oracle’s recent performance hasn’t been quite as good as Qualcomm’s, but earnings are still up and it carries trailing and forward P/E multiples of 15 and 10, respectively. We think that it could be a value play at those prices.
Another cheap-looking company with considerable hedge fund interest is networking company Cisco Systems, Inc. (NASDAQ:CSCO), which trades at 12 times trailing earnings and reported an 18% increase in net income in its most recent quarter compared to the same period in the previous year. 59 hedge funds owned Cisco at the beginning of October and we think that investors should look more closely at the stock.
EMC Corporation (NYSE:EMC) was another popular tech stock. The $51 billion market cap data storage company’s growth rates have been more modest than some of the companies we’ve discussed, and on a trailing basis it’s a bit more expensive, but Wall Street analysts expect high earnings growth in 2013. We wouldn’t want to depend on these expectations and so we’d say it isn’t as good a pick.
44 hedge funds reported a position in Intel Corporation (NASDAQ:INTC), even though the chipmaker has been struggling to handle the shift to tablets and smartphones. Its earnings dropped 14% in the third quarter versus a year earlier, and its peers such as AMD are seeing even sharper declines. At a trailing P/E of 8 and a dividend yield above 4%, it’s a tempting value target if it can limit the decline of its business.
Facebook Inc (NASDAQ:FB)’s ownership among hedge funds ticked up during the third quarter to 43 filers, allowing it to make the top ten list. It’s an odd one out on this list because it’s so clearly a growth stock, priced at over 30 times consensus earnings for 2013. Even though it’s down so much from its IPO price, that’s still a high multiple and we don’t think that it’s a good buy.
Flash memory storage company SanDisk Corporation (NASDAQ:SNDK) rounded out the top tech picks. SanDisk’s stock price is down 18% in the last year, but the drop in net income has been considerably higher at 67%. Sell-side analysts expect the company to rebound, with earnings targets for the next year implying improvement in the bottom line, but we think that we’d need to see more evidence of an actual turnaround.