Hedge fund trades are now public for the last quarter following the release of 13F forms filed with the SEC. Out of all the different sectors, hedge funds are most bullish on the tech sector. Fund guru David Tepper of Appaloosa Management even believes that tech stock “multiples are still low.” He told CNBC: “They just look cheaper than any other part of the market even though they moved.”
So bearing this in mind I decided to find three top tech picks with very bullish hedge fund sentiment. I turned to TipRanks, which tracks and ranks over 200 hedge fund managers on more than 5,000 stocks. Such a robust database enables you to see what the best-performing fund managers are up to and assess the overall hedge fund sentiment on any particular stock.
Now before we delve into the top tech stocks to buy, note that fund managers only need to submit 13F forms to the SEC 45 days after the end of the last quarter. This means the SEC forms only reveal how portfolios looked at the end of June.
Nonetheless, these trades still provide an important insight into how the savviest fund managers see the market. Let’s dive in and take a closer look at these top stocks.
Tech Stocks to Buy: Alibaba (BABA)
Chinese online marketplace Alibaba Group Holdings Ltd (NYSE:BABA) is a number one stock for best-performing fund managers. Hedge funds increased holdings by a huge 20.2 million shares in the last quarter, giving the stock a “very positive” hedge fund confidence signal. A number of big-name fund managers plunged into BABA in Q2. Most noticeably, Ken Fisher of the $62 billion Fisher Asset Management fund drastically increased the fund’s BABA holding by 87% to $1.45 billion.
At the same time, activist investor Daniel Loeb and David Tepper both initiated new positions in the stock worth $634 million and $520 million, respectively. Loeb — of the $11.28 billion Third Point LLC fund — has been vocal in his belief that Alibaba is “among the best business models in the internet sector.” And with shares now at a record high of $167, the Street is also falling for BABA’s charms. Alibaba has a “strong buy” analyst consensus rating with 15 straight “buy” ratings from analysts over the past three months. The $181 average analyst price target translates into 8.1% upside from the current share price.
Top RBC Capital analyst Mark Mahaney ramped up his price target from $160 to $185 on Aug. 17. The move came after Alibaba reported very strong results for last quarter that easily beat Street estimates. Mahaney gives this bullish appraisal of Alibaba’s prospects:
“BABA continues to demonstrate high levels of profitability (63% EBITA margins in Core Commerce). These trends are impressive and appear sustainable. We view BABA as a PremiumGrowth/Premium-Profit Asset and view the run-up in shares year-to-date as fully warranted given fundamental trends and growth runway.”
Tech Stocks to Buy: Twilio (TWLO)
Cloud communications platform Twilio Inc (NYSE:TWLO) is experiencing a dramatic influx of smart money. In the last quarter, funds increased holdings by a net total of 1.4 million shares. As a result, the stock has a “very positive” hedge fund confidence signal on TipRanks.
In particular, the $11 billion Coatue Management fund run by Philippe Laffont increased its TWLO holding by a massive 329% to $54 million. (Note that Laffont is a top-ranked fund manager with a very impressive portfolio gain of 123% since June 2013.) At the same time, Mark Diker of Diker Management LLC also initiated a new position in the stock just shy of $1 million.
Twilio stock wafted up some 11% following second-quarter earnings that easily beat market expectations. The cherry on the cake is that Twilio increased its sales outlook for the full year to $371 million to $375 million. The new guidance comes in way ahead of the Street estimate of $359.8 million. On Aug. 8, four-star Oppenheimer analyst Ittai Kidron reiterated his “buy” rating with a $38 price target (27% upside from the current share price). According to Kidron, Twilio will continue to experience strong revenue growth for the foreseeable future and drive upside to consensus expectations. He says:
“Twilio reported strong 2Q17 results, gave equally strong Sept.-quarter guidance, and increased its full-year guidance. Overall, the results validate our view that challenges with Uber are an exception and transitory in nature. Metrics indicate that, ex-Uber, Twilio continues to experience impressive growth in new customers, size of new customers, and existing customer usage.”
In the past three months, Twilio has received nine “buy” ratings and two “hold” ratings, which gives it a “strong buy” analyst consensus. We can also see that TWLO stock has an average analyst price target of $38.14. This suggests that there is serious upside potential left of 27.5%.
Tech Stocks to Buy: NXP Semiconductors (NXPI)
This Netherlands-based semiconductor manufacturer NXP Semiconductors (NASDAQ:NXPI) is soaring. Shares in NXPI are up from $88 to $112 year-to-date. This strong performance is reflected by the stock’s “very positive” hedge fund confidence signal.
Indeed, in the last quarter hedge funds increased holdings in NXPI by a whopping 16.2 million shares. Earlier in August, activist investor Paul Singer called the stock “significantly undervalued.” He now has a new $1.35 billion position in the stock.
The stock currently has a “hold” analyst consensus rating. This cautious attitude is explained by the fact that Qualcomm (NASDAQ:QCOM) currently has a $38 billion bid pending for NXPI. On Aug. 7, top Morgan Stanley analyst Craig Hettenbach increased his price target for NXPI from $110 to $117.50.
The new price target actually comes in above the deal price. This is because Hettenbach is confident that NXPI shareholders can get a higher takeout price from QCOM. The analyst has a “hold” rating on NXP Semiconductors.
Bonus: 2 Stocks Hedge Funds Turned Bearish On
Disappearing photo app Snap Inc (NYSE:SNAP) had a much weaker quarter than in the first three months of the year. We can see that, in the prior quarter, hedge funds sold a net total of 3.8 million shares.
Notably, key shareholders like Appaloosa Management, Third Point and Jana Partners all exited SNAP stock. Shares in SNAP are down from a high of $27 in March to $14. Investors fear that fast-growing photo app Instagram will eventually eclipse Snapchat.
In May last year, Andreas Halvorsen of Viking Global Investors revealed a $2.4 billion Facebook Inc (NASDAQ:FB) position. Now, however, Halvorsen has slashed that position by over 60%. And he isn’t alone. Bloomberg reveals that overall fund ownership of FB stock is down by about $487 million in the last quarter.
Nonetheless, even with these cuts, FB still remains one of the most popular hedge fund stocks.
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