Apple Inc. (NASDAQ:AAPL)‘s iPhone 6 and iPhone 6 Plus continue to drive the company’s revenue as they contributed the majority of the phone maker’s fiscal third quarter revenues. Apple Inc. (NASDAQ:AAPL) reported its second quarter financial results in the after-hours on Tuesday. The Cupertino, California-based tech giant posted earnings of $10.7 billion or $1.85 per share for the quarter that ended on June 30. Apple Inc. (NASDAQ:AAPL) posted total revenue of $49.6 billion for the quarter and managed to beat the Street’s expectations of $1.76 in EPS and $49 billion in revenues. Apple also managed to beat its own revenue guidance of $46 to $48 billion for the quarter. There was a minor miss as the company sold 47.5 million iPhones during the quarter, 2.5 million units lower than analysts’ target. But iPhone sales number were nonetheless up by 35% from the same period in 2014. “We had an amazing quarter, with iPhone revenue up 59 percent over last year, strong sales of Mac, all-time record revenue from services, driven by the App Store, and a great start for Apple Watch”, Apple’s CEO Tim Cook was quoted as saying in a news release. The U.S continued to be the largest market for Apple Inc. (NASDAQ:AAPL), but China is continuing to strengthen their second position by contributing nearly $13.2 billion in revenues for the quarter, up nearly 112% from China’s contribution during the same period in 2014. In addition to the strong iPhone sales, Apple sold around 10.9 million iPads, down from 13.3 million units sold a year ago and 4.8 million Macs, marginally up from 4.6 million units sold a year ago. Apple did not specify any sales numbers for its smartwatch, the Apple Watch, which it had noted it would not do leading up to the earnings release, but from the other products category revenue was $2.6 billion, and analysts expect that Apple has shipped around 3 to 5 million units of its smartwatch in the quarter.
Nonetheless, another record quarter wasn’t enough for analysts or investors, who have sent shares tumbling by 7% in pre-market trading, primarily due to a combination of Apple being held to a higher standard and not quite living up to expectations, despite the top and bottom line beats. In particular, the miss on iPhone sales and the seemingly weak Watch numbers seem to have investors spooked about where Apple’s near-term growth catalysts will come from. Hedge funds tracked by Insider Monkey were perhaps also also wary of this heading into the second quarter. A total of 150 of the hedge funds tracked by Insider Monkey were long in Apple Inc. (NASDAQ:AAPL) on March 31 with a total investment of $21.52 billion, up from $20.88 billion held by 149 hedge funds at the end of 2014. Considering the fact that Apple’s stock jumped by around 11% during the January – March period however, we can see that hedge funds collectively pulled a small amount of capital out of the stock, as their total holdings increased by less than 4% in value.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 80 percentage points since the end of August 2012 when this system went live, returning a cumulative 139% vs. less than 59% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at the insider activity on Apple Inc. (NASDAQ:AAPL) shares, there have been no insider purchase of the shares so far this year, but there were a few insider sales. Senior Vice President at Apple Inc. (NASDAQ:AAPL), Angela Ahrendts sold around 150,000 shares in multiple transactions this year. Another Senior Vice President at Apple Inc. (NASDAQ:AAPL), Daniel Riccio sold around 75,000 shares during the same period.
With all of this in mind, let’s check out the recent hedge fund activity surrounding Apple Inc. (NASDAQ:AAPL).
What have hedge funds been doing with Apple Inc. (NASDAQ:AAPL)?
Of the funds tracked by Insider Monkey, Carl Icahn’s Icahn Capital LP had the biggest position in Apple Inc. (NASDAQ:AAPL), followed by Ken Fisher of Fisher Asset Management, with around 10.8 million shares valued at $1.35 billion by the end of March; the fund has 2.7% of its 13F portfolio invested in the stock. Some other peers with similar optimism comprise Phill Gross and Robert Atchinson’s Adage Capital Management, Philippe Laffont’s Coatue Management and David Einhorn‘s Greenlight Capital.
As aggregate interest increased, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke, and John Campbell, opened up the largest position in Apple Inc. (NASDAQ:AAPL). Arrowstreet Capital bought around 3.8 million shares of the company during the first quarter. Robert Pitts‘ Steadfast Capital Management also initiated a new position during the quarter by buying around 2.5 million shares. The other funds with new positions in the stock are Benjamin A. Smith’s Laurion Capital Management, Alex Snow’s Lansdowne Partners, and Christopher Medlock James’ Partner Fund Management.
Many leading hedge fund managers like Carl Icahn, David Einhorn, Philippe Laffont, and Ken Fisher continue to hold large positions in the Apple Inc. (NASDAQ:AAPL), which is a clear indicator that they expect the company to grow further in 2015. Considering the fact that the company has posted yet another strong quarterly earnings and the market has had a somewhat unexpected reaction, we recommend buying Apple on weakness, with a rebound expected shortly.
Disclosure: None
