Technology stocks have given back a significant portion of their gains generated over the last few years. The NASDAQ-100 Technology Sector Index has lost 8.50% since the beginning of the year, mainly owing to the recent broader market selloff. However, the tech sector still remains one of the best performing sectors and is likely to remain so in the years ahead. In the following article we will lay out a list of five tech stocks under $10 that might represent great winners in the upcoming years. However, it is worth noting that the share price of a stock in and of itself should not be given too much emphasis, it is the quality of the stock that really matters. Therefore, we will discuss the sentiment of the top money managers in the world on these cheap tech stocks, an important barometer that might provide useful insight about the upside potential of these stocks.
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Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last 36 months and outperformed the S&P 500 Index by 60 percentage points (see the details here).
5. PMC-Sierra Inc (NASDAQ:PMCS)
Investors with Long Positions (as of June 30): 27
Aggregate Value of Investors’ Holdings (as of June 30): $664.22 Million
The number of hedge funds monitored by Insider Monkey with stakes in PMC-Sierra Inc (NASDAQ:PMCS) at the end of the second quarter was up by four compared to the previous quarter. Nevertheless, the value of these stakes shrank by $60.41 million during this period. The shares of PMC-Sierra have lost over 31% since the beginning of the year, and it is hard to imagine that this stock was once trading at a price level of over $255 per share. The semiconductor and software company has been struggling in its carrier and storage end markets this year, but its management is endeavoring to reduce spending so as to stabilize the company. Just recently, George Soros’ Soros Fund Management reported an ownership stake of 10.69 million shares in PMC-Sierra Inc (NASDAQ:PMCS), which might indirectly hint at the attractiveness of the company’s stock.
4. Zynga Inc (NASDAQ:ZNGA)
Investors with Long Positions (as of June 30): 29
Aggregate Value of Investors’ Holdings (as of June 30): $619.41 Million
Zynga Inc (NASDAQ:ZNGA) lost some of its appeal among the hedge funds tracked by our team in the second quarter, as the number of investors with positions in the stock declined by two quarter-over-quarter. By the same token, the value of the overall positions decreased by $29.01 million over the June quarter. It is highly unlikely that the social game maker will represent a stable and steadily-growing investment over the years, as Zynga’s industry is very competitive and requires great human capital. Mark Pincus has resumed his CEO position at the company after he stepped down back in 2013. The company’s shares are 5% in the red year-to-date, partly owing to the recent broader equities market pullback. Ricky Sandler’s Eminence Capital represents one of the largest shareholders of Zynga Inc (NASDAQ:ZNGA) within our database, owning 76.33 million shares.
3. SouFun Holdings Ltd (NYSE:SFUN)
Investors with Long Positions (as of June 30): 33
Aggregate Value of Investors’ Holdings (as of June 30): $400.94 Million
Two more hedge funds observed by our team had SouFun Holdings Ltd (NYSE:SFUN) in their portfolios at the end of the latest quarter than they did on March 31, while the value of their investments in the stock was up by $115.97 million. The operator of the biggest real estate portal in China is set to receive between $400 million-to-$700 million in investments from private equity firms IDG Capital and Carlyle Group, and the company’s CEO, Vincent Mo. The subscription price of the freshly-issued Class A ordinary shares is $5.85 per each American Depository Share (ADS). The investments are expected to be used for the company’s aggressive expansion into more cities in China and to assist the company in increasing its market share in existing markets. James Dinan’s York Capital Management initiated a 7.5 million share-stake in SouFun Holdings Ltd (NYSE:SFUN) during the second quarter.
2. Groupon Inc (NASDAQ:GRPN)
Investors with Long Positions (as of June 30): 34
Aggregate Value of Investors’ Holdings (as of June 30): $220.28 Million
There was one hedge fund less invested in Groupon Inc (NASDAQ:GRPN) at the end of the second quarter compared to the prior one. Likewise, the value of the hedge funds’ investments in the stock fell by $199.41 million over this period. Groupon went public back in 2011, after rejecting a $6 billion offer from Google Inc. (NASDAQ:GOOGL). It was seen as a rising “star” at the time, but the company has not been able to surprise the market after its IPO. The shares of Groupon have been on a steady downtrend since the beginning of the year, losing almost half of their value year-to-date. The fierce competition in the e-commerce industry has hindered the company’s growth over the last few years. Even so, Groupon delivered a strong financial performance in the second quarter, posting revenue of $738.4 million, up from $716.2 million a year ago. Israel Englander’s Millennium Management reported owning 9.82 million shares in its latest 13F filing with the SEC.
1. Atmel Corporation (NASDAQ:ATML)
Investors with Long Positions (as of June 30): 36
Aggregate Value of Investors’ Holdings (as of June 30): $364.64 Million
The number of hedge funds with long positions in Atmel Corporation (NASDAQ:ATML) increased by eight during the June quarter, while the value of these positions grew by $162.46 million. Unfortunately, we were a day late getting this article published for our readers, as just a few hours ago, chipmaker Dialog Semiconductor and Atmel announced that the Anglo-German company agreed to buy its U.S industry peer in a cash and stock transaction that adds up to $4.6 billion. The transaction is anticipated to close in the first quarter of 2016, with Atmel’s shareholders receiving $4.65 in cash and 0.112 of Dialog’s American Depository Shares (ADS), which will be listed on the New York Stock Exchange or the NASDAQ Stock Market. The stock has already exploded during today’s trading session as a result, up by over 15%, with the company’s current shareholders receiving an attractive premium. Cliff Asness’ AQR Capital Management was among the largest shareholders of Atmel Corporation (NASDAQ:ATML) at the end of the quarter, with an ownership stake of 3.62 million shares.
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