Even though 2015 is turning out to be a rather flat one for the stock market overall as oil, Greece, and fears that the extended bull run is bound to collapse at any moment weigh down upon it, one of the few sectors that is continuing with its bull run this year has been technology. During the first quarter several hedge funds among the more than 700 that we track increased their exposure to the technology sector significantly. Steadfast Capital Management, a New York-based, employee-owned hedge fund headed by Robert Pitts, was not an exception to that trend. The fund added several tech names to its equity portfolio in the March quarter and also increased its exposure to several tech stocks that it previously owned. According to Steadfast Capital’s latest 13F filing, stocks from the technology sector constituted 23% of the fund’s $7.17 billion equity portfolio after the first quarter, making technology the top sector in terms of value of holdings for the fund. In this article we are going to evaluate Steadfast’s top technology picks: Apple Inc. (NASDAQ:AAPL), Sunedison Inc (NYSE:SUNE) and King Digital Entertainment PLC (NYSE:KING).
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole; yet investors have been stuck (until now) investing in all of a hedge fund’s stocks: the good, the bad, and the ugly. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? These top small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Even better, since the beginning of forward testing at the end of August 2012, the strategy worked just as our research predicted and then some, outperforming the market every year and returning 135% over the last 34 months, which is more than 80 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
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Insider Monkey’s internal research shows that Apple Inc. (NASDAQ:AAPL) was the second-most popular stock among top hedge funds during the March quarter with 20.5% of the hedge funds among those we track having a stake in the company. Although many hedge funds held a stake in the company from the previous quarter, Steadfast Capital Management was a fund that initiated a new stake in Apple Inc. (NASDAQ:AAPL) in the first quarter. The fund bought around 2.5 million shares of the company valued at almost $311 million as of March 31, with the move pushing the company all the way to the top of its technology picks. Apple Inc. (NASDAQ:AAPL) recently started selling its Apple Watch through its Apple Stores after weeks of selling it only on its website. Recent reports and notes from some analysts who cover the stock suggests that the sales of the Watch might not be as spectacular as the Street was expecting at one point. However, that possibly won’t have any major effect on the world’s largest company’s top or bottom-line sales, as the sales of the iPhone 6 and iPhone 6 Plus continue to remain strong. Carl Icahn‘s Icahn Capital LP and Ken Fisher’s Fisher Asset Management had the largest and the second-largest stake in the company respectively as of March 31 out of the funds we track.
Even after reducing its stake in Sunedison Inc (NYSE: SUNE) by 16% to a little over 9.07 million shares valued at $217.7 million at the end of March, the company remained Steadfast Capital’s second-largest technology pick heading into the second quarter. Shares of the clean energy company have had a massive surge in the last couple of months, pushing them up by over 52% year-to-date. The company recently announced that it plans to invest almost $15 billion in India by 2020. Most of the analysts are extremely bullish on the stock, with 12 out of 14 of them who cover the stock having a ‘Buy’ rating on it. Analysts expected the company to reduce its losses by more than half during the second quarter and post an EPS loss of $0.43, compared to the EPS loss of $0.92 that it reported for the first quarter of the year. The company stood firmly on our list of the 20 most popular stocks held by hedge funds at the end of the March quarter. Kenneth Tropin’s Graham Capital Management and David Einhorn‘s Greenlight Capital were two of the largest shareholders of the company as of March 31.
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Steadfast Capital Management increased its stake in the gaming company King Digital Entertainment PLC (NYSE:KING) by 18% during the March quarter to over 8.18 million shares valued at about $141 million as of March 31. Shares of the maker of games such as Candy Crush and Bubble Witch are down more than 20% since its IPO in late March of last year, when Steadfast Capital Management initiated a stake in the company. King Digital Entertainment PLC (NYSE:KING) has an average recommendation of ‘Overweight’ on the Street, with an average price target of $19.20, over 35% higher than its current trading price of $14. Apart from Steadfast, David E. Shaw‘s firm D E Shaw is also bullish on the stock, increasing its stake by 122% during the first quarter.
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