Hedge Funds Agree With Goldman Sachs’ Praise For These 3 Tech Stocks

As it is widely known, the financial turmoil in the world’s second-largest economy, China, and the concerns about the timing of the Federal Reserve’s interest rate hike have triggered several massive selloffs in the U.S equities markets lately. However, the companies’ fundamentals have not inherently changed over this time span, whereas the return dispersion has fallen significantly in tandem with the plummeting stock market. The Goldman Sachs Group Inc. (NYSE:GS) recently disclosed a list of 25 stocks that have high dispersion scores, and all of which also carry significant potential to the upside based on Goldman Sachs’ price target on them. According to the investment bank’s analysts, the dispersion scores “reflect a combination of each stock’s firm-specific risk and micro-sensitivity”. As a result, these stocks with high dispersion scores are more likely to respond to firm-specific news rather than global macro economic news than those with lower dispersion scores. The following article will cover the three tech stocks pinpointed by Goldman Sachs in its piece and will also discuss the hedge fund sentiment on each of them.

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).

3. Juniper Networks Inc. (NYSE:JNPR)

Investors with Long Positions (as of June 30): 45

Aggregate Value of Investors’ Holdings (as of June 30): $1.83 Billion

Let’s start our discussion with Juniper Networks Inc. (NYSE:JNPR), which was assigned a dispersion rate of 3.0 and an upside potential to Goldman Sachs’ price target of 32%. The number of hedge funds monitored by Insider Monkey with positions in the stock was up by four during the second quarter. Similarly, the value of their investments climbed by $205.38 million during the three-month period. The recent broader market pullback has pressed Juniper’s shares lower, but they have still managed to deliver a return of over 13% year-to-date. On Tuesday, Juniper and Aerohive Networks Inc. (NYSE:HIVE) decided to form a technology alliance in order to provide a cloud-managed, wired and wireless solution to a wide range of sectors. The combination of Aerohive’s cloud Wi-Fi solutions and Juniper’s performance switches, comprehensive network management, and security solutions is set to assist enterprises in simplifying network planning and deployment. Paul Singer’s Elliott Management represents the largest equity holder of Juniper Networks Inc. (NYSE:JNPR) within our database, holding a 34.25 million share-stake.

2. Cognizant Technology Solutions Corp (NASDAQ:CTSH)

Investors with Long Positions (as of June 30): 49

Aggregate Value of Investors’ Holdings (as of June 30): $842.82 Million

Cognizant Technology Solutions Corp (NASDAQ:CTSH) is another “high dispersion rate” stock, with an upside potential of 24%. Eight more hedge funds owned the stock at the end of the latest quarter compared to the prior one, whereas the value of the money invested in the stock shrank by $32.25 million over this period. The provider of information technology (IT), consulting, and business process services has delivered a stellar stock performance over the last few years, mainly assisted by the company’s aggressive growth strategy. Cognizant has pursued 16 acquisitions since 2010, all of which were primarily focused on geographic expansion and enriching its industry knowledge. This year has not been bad either, as its shares have gained over 18% since the beginning of the year. It is also worth noting that Cognizant has teamed up with Verizon Communications Inc. (NYSE:VZ) to enhance the delivery of leading-edge, technology-based solutions to enterprises, which will most likely lead to an increase to the company’s top-line in the upcoming quarters. Ken Griffin’s Citadel Investment Group is the top shareholder of Cognizant Technology Solutions Corp (NASDAQ:CTSH) among the hedge funds tracked by Insider Monkey, with 2.45 million shares.

1. salesforce.com inc. (NYSE:CRM)

Investors with Long Positions (as of June 30): 68

Aggregate Value of Investors’ Holdings (as of June 30): $1.85 Billion

salesforce.com inc. (NYSE:CRM) received a strong vote of confidence from the hedge funds tracked by us, as the number of money managers invested in the stock climbed by 22 during the second quarter. By the same token, the value of their holdings in salesforce.com more than doubled during this period, increasing by $948.80 million, partially thanks to the company’s stock performance during that quarter. salesforce.com inc. (NYSE:CRM)’s share price performance looks more cheerful on a broader picture, as its shares have gained more than 21% year-to-date. Just a few days ago, the provider of enterprise cloud computing solutions announced the extension of its strategic partnership with Microsoft Corporation (NASDAQ:MSFT) to connect its Salesforce Customer Success Platform to Microsoft Office productivity apps and services. The two companies also teamed up back in 2014 with two new integrations: Salesforce App for Outlook, and Salesforce1 Mobile App for Microsoft Office. Considering the positive hedge fund sentiment on the stock and its strong stock performance, it is no surprise that salesforce.com made Goldman Sachs’ list of potential “outperformers” in the challenging macro environment. James Dondero’s Highland Capital Management added a 1.88 million-share position in salesforce.com to its portfolio during the recent quarter.

Disclosure: None