It appears that the equities markets are narrowing down the losses incurred on Friday, with the Dow Jones Industrial Average gaining over 115 points thus far in today’s trading session. The uncertainty around the timing of the Federal Reserve’s interest rate hike, and the growing concerns about the weak global economy and its potential impact on the U.S economy all continue to trigger waves throughout the equities markets. Leaving the global macroeconomic issues aside, British multinational investment bank Barclays started coverage on two semiconductor stocks this morning: Micron Technology Inc. (NASDAQ:MU) and SanDisk Corporation (NASDAQ:SNDK). In the following article we will take a look at the investment bank’s ratings and at the hedge funds’ sentiment on these two stocks.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the 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 experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 60 percentage points since the end of August 2012. These stocks returned a cumulative of 118% vs. 57.6% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
Let’s start by looking into Micron Technology Inc. (NASDAQ:MU), which was started with an ‘Overweight’ rating and a target price of $20. Barclays believes that the near-term risk for the company is already reflected in its share price, while a stable market dynamic is likely to result in more upside for Micron than from its peer SanDisk Corporation. The weak PC sales have been putting downward pressure on DRAM chip demand, which has resulted in lower prices and reduced earnings for the chipmaker. This outcome seems to be reflected in the company’s share price, as its stock has lost more than half of its value since the beginning of the year.
We will now take a quick look at the hedge fund sentiment on Micron Technology so as to see whether reputable money managers believe in the company’s future prospects. Unsurprisingly, the stock lost some of its charm among the hedge funds tracked by Insider Monkey, as the number of investors with stakes in the company decreased by 21 during the second quarter to 79. The value of their investments in the stock also decreased significantly, declining to $3.73 billion from $6.96 billion over the quarter. From the 737 hedge funds monitored by our team, David Einhorn’s Greenlight Capital represents the largest shareholder of Micron Technology Inc. (NASDAQ:MU), holding 37.95 million shares.
Moving on to our next candidate, SanDisk Corporation (NASDAQ:SNDK) received an ‘Equal Weight’ rating and a price target of $60. This freshly-established price target yields an upside potential of over 11% from the current share price. The shares of SanDisk have been moving towards reaching this target, after advancing by 1.89% so far in today’s trading session. SanDisk’s stock performance has been disappointing as well in 2015, as its shares have slipped by 43% year-to-date. SanDisk Corporation lost one of its major clients of solid state drives (SSD) in the first quarter, which was reflected in the company’s second-quarter financial results. Allegedly, this key client was Apple Inc. (NASDAQ:AAPL), which switched to another SSD supplier for its recently-launched iPhone 6s.
There were 50 hedge funds observed by our team that owned SanDisk at the end of the second quarter, compared to 40 registered a quarter earlier. Nevertheless, the value of the money invested in the stock shrank to $1.33 billion from $1.35 billion quarter-over-quarter, though the decline in its share price of 8.4% means funds actually did add some shares to their portfolios collectively, exhibiting some clear bullishness towards the stock. David Cohen and Harold Levy’s Iridian Asset Management is among the most bullish hedge funds on SanDisk within our database, owning 7.02 million shares as of June 30. Michael Lowenstein’s Kensico Capital is another top shareholder of SanDisk Corporation (NASDAQ:SNDK), holding a 4.37 million-share position.
Disclosure: None
