Hardware. Hewlett-Packard Company (NYSE:HPQ) and Dell Inc. (NASDAQ:DELL) were among Bridgewater’s top five stock picks at the end of June, and even with both stocks down during the third quarter- HP by 14% and Dell by over 20%- they remained at the top of the hedge fund’s portfolio as the stake in HP was increased by over 10% and the stake in Dell grew by over 60%. These companies are both trying to move away from PCs into more services-oriented businesses, but the market has been dissatisfied with their progress. It looks to us like Bridgewater believes that HP’s and Dell’s hardware businesses won’t do as poorly in the future as the market expects. It’s possible that the fund is in fact more confident that these players will make a successful transition to software and services, but we’d note that while Bridgewater did also report a sizable position in Oracle it had sold shares in that company during the third quarter. A hardware play seems to be more likely. We’d looked at Dell and Hewlett Packard recently and hadn’t considered either to be a good stock to buy despite forward P/Es in the 4-5 range.
Retail. This one we may be stretching a bit, but Bridgewater did add shares to its position in Staples- vaulting that to the #6 slot in its 13F portfolio- as well as increasing its holdings of Safeway Inc. (NYSE:SWY) by about a third to make that the second largest stock holding by market value in its 13F portfolio. The trailing, and forward, P/E multiples at these two companies all come out to 8x, which normally represents value territory. Both stocks also pay dividend yields of about 4%. Staples seems to be struggling more in terms of its business, as competition with Amazon likely helped drive its earnings down 32% in its second fiscal quarter versus a year earlier, but it’s Safeway- where net income has actually been up- that is the more popular short selling target with 30% of the outstanding shares held short. Safeway looks like a good potential value play, and while we’re considerably more cautious on Staples we could see an investor looking at that as well.
Uncool tech companies. Apple and Google are favorites of hedge funds (they’d topped our list of the most popular stocks among hedge funds for the second quarter), tech watchers, and consumers, but neither of those companies were to be found in Bridgewater’s 13F at all, let alone in its top holdings. It did own Microsoft Corporation (NASDAQ:MSFT) (the fund’s largest equity position by market value; to be fair, it too had been a widely held stock by hedge funds) and Yahoo! Inc. (NASDAQ:YHOO) (a position that it significantly increased to 1.3 million shares). Microsoft and Yahoo carry forward P/Es of 8 and 16 respectively, with Microsoft’s multiple being artificially low due to the release of new versions of Windows and Office. As such we can’t really say that that they are cheap, especially compared to Apple.
Bridgewater, at least in terms of its 13F portfolio, seems to be quite contrarian here. That’s paid off in some ways- it’s missed the recent correction at Apple and Google- but not so much in others (as HP and Dell have continued to drop so far this quarter). Potentially the most interesting ideas for investors are its larger positions in Safeway and Staples.
