Harris Associates Believes These 5 Tech Stocks Are Undervalued

Harris Associates, a subsidiary of Natixis Global Asset Management, is always on the lookout for significantly under-priced companies with strong business fundamentals and proven, shareholder-oriented management teams. The value-investing firm believes that its strategy protects it from significant downside while providing considerable upside potential, and relies on intensive fundamental research carried out by its team of experienced investment analysts to achieve its goal. According to its latest 13F filing, Harris Associates’ equity portfolio was worth over $53.12 billion at the end of March and technology sector stocks represented 26% of that value. Considering that the sector is down by more than 5% since the start of this year, it may be a good time to seek out bargains. Hence, today we have decided to take a gander at the top technology picks of Harris Associates as of March 31.

At Insider Monkey, we track nearly 800 hedge funds and other institutional investors as part of our small-cap strategy, which can help a retail investor beat Mr. Market by nearly one percentage point per month (see details). Additionally, we can use the data to see how hedge funds positioned themselves towards different other individual companies.

#5 Baidu Inc (ADR) (NASDAQ:BIDU)

– Shares Owned by Harris Associates (as of March 31): 4.69 Million

– Value of Holding (as of March 31): $895.79 Million

Harris Associates boosted its stake in Baidu Inc (ADR) (NASDAQ:BIDU) by 11% during the first quarter, to 4.69 million shares. After a precipitous decline to start the year, those shares of the Chinese-language internet search provider began to rally in early-February, boosted by the company’s strong performance in the fourth quarter of 2015. However, despite another positive showing in the first quarter, shares have fallen by 17% since April 29 after it was revealed that Chinese regulators were investigating the company concerning the plight of a student who passed away from cancer after he used a treatment that he found through a sponsored link on the company’s search engine. Baidu has stated that it will comply with the sanctioned ad practices by May 31, which has already led to the loss of over $125 million in ad revenue from contracts with military hospitals being terminated. William Von Mueffling‘s Cantillon Capital Management trimmed its stake in Baidu Inc (ADR) (NASDAQ:BIDU) by 5% during the March trimester to 2.13 million shares.

#4 Microsoft Corporation (NASDAQ:MSFT)

– Shares Owned by Harris Associates (as of March 31): 17.87 Million

– Value of Holding (as of March 31): $987.42 Million

Harris Associates initiated a stake in the tech giant back in the first quarter of 2001 and the stock has delivered average annual returns of 4.3% since then, slightly outpacing the S&P 500’s 4.05% annual returns. While Microsoft Corporation (NASDAQ:MSFT)’s stock has lost 7.6% of its value this year, mostly on the back of declining PC sales, its long-term transformation towards software and the cloud is showing promising signs of growth. Harris Associates was perhaps less optimistic about the transformation however, as it slashed its Microsoft Corporation (NASDAQ:MSFT) holding by 17% during the first quarter. Another fund on the same page was First Eagle Investment Management, led by Mehdi Mahmud, as it too reduced its Microsoft holding during the same period, by 22% to 23.62 million shares.

We’ll look at Harris Associates’ top-3 tech stock picks on the next page.

#3 Intel Corporation (NASDAQ:INTC)

– Shares Owned by Harris Associates (as of March 31): 43.70 Million

– Value of Holding (as of March 31): $1.41 Billion

Harris Associates’ Intel Corporation (NASDAQ:INTC) holding received a 15% cut during the January-to-March period and represented 2.6% of the firm’s portfolio. Shares of the manufacturer of digital technology platforms have fallen by about 12.5% this year amid first quarter financial results that missed top-line estimates, but beat bottom-line expectations. The company’s second quarter guidance was lighter than anticipated however, which contributed to the declines. In an attempt to break free from this downtrend, Intel recently announced that it will cut 12,000 jobs, which represent 11% of its workforce, and that its CFO will be replaced. Ken Fisher‘s Fisher Asset Management upped its stake in Intel Corporation (NASDAQ:INTC) by 1% during the first three months of this year, to 19.63 million shares.

#2 Alphabet Inc (NASDAQ:GOOG)

– Shares Owned by Harris Associates (as of March 31): 1.98 Million

– Value of Holding (as of March 31): $1.48 Billion

Harris Associates also trimmed its stake in Alphabet Inc (NASDAQ:GOOG) during the first three months of 2016, by 8% to 1.98 million Class C shares. The tech giant recently surpassed Apple Inc. (NASDAQ:AAPL) in terms of market capitalization, though its shares are down by 6.34% this year. A month after EU officials claimed that Google was unfairly using its Android dominance to promote its own apps, Russia’s antitrust authorities are looking to fine the search giant on similar grounds. The fine could amount to as much as 7% of the company’s annual revenue in Russia. Google is also involved in a court battle with Oracle Corporation (NYSE:ORCL) over whether it infringed the latter’s copyrighted Java code by using pieces of it when it developed the Android mobile OS in 2006. Fisher Asset Management held about 973,300 Class A shares of Alphabet Inc (NASDAQ:GOOG) at the end of March, following a 3% hike to the holding during the first quarter.

#1 Oracle Corporation (NYSE:ORCL)

– Shares Owned by Harris Associates (as of March 31): 47.72 Million

– Value of Holding (as of March 31): $1.95 Billion

The $163 billion provider of enterprise software and computer hardware products and services made its entry into Harris Associates’ portfolio during the third quarter of 2005. The fund’s stake was cut by 5% during the first three months of this year, to 47.72 million shares, but remained its top pick. Donald Yacktman‘s Yacktman Asset Management also reduced its Oracle Corporation (NYSE:ORCL) holding during the first quarter, by 12% to 20.18 million shares. So far this year shares of Oracle have climbed by over 9%. The company has been on an acquisition spree of late, recently scooping up Opower Inc (NYSE:OPWR) for approximately $532 million and cloud services player Textura Corp (NYSE:TXTR) in a deal valued at $663 million.

Disclosure: None