Smart Money is Hoarding Shares of These 10 Technology Stocks, Part 2

Technology stocks have managed to keep their four-year bull run intact this year, in spite of the volatility seen over the past few months. Whereas most other industry sectors are currently trading flat or in the red for 2015, the S&P North American Technology Sector Index (INDEXSP:SPGSTI) is still trading up by over 7% year-to-date. Though a lot of the thanks for the gains in the sector this year is owed to a few large-cap stocks, there are several other stocks in the technology universe that have the potential to be major winners going forward. In our quest to identify such potential outperformers, we compiled a list of tech companies whose shares are being hoarded by hedge funds i.e. a large percentage of their common stock in aggregate is owned by the hedge funds and other institutional investors monitored by Insider Monkey. In a previous post we revealed five such tech stocks and in this article we are going to discuss the remaining five.

Why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 38-month period beginning from September 2012, returning 102% (read the details here).

Archrock Inc (NYSE:AROC)

 – Investors with Long Positions (September 30): 26

 – Aggregate Value of Investors’ Holdings (September 30): $405.31 million

 – Common Stock of The Company Owned By Investors (as of September 30): 32.40%

Shares of Archrock Inc (NYSE:AROC) [formerly Exterran Holdings, Inc.] dropped by more than 40% between May and October. Moreover, they more than halved after the completion of the spin-off of the international services and global fabrication businesses of Exterran Holdings, Inc into a separate trading entity, Exterran Corp (NYSE:EXTN). During the third quarter the ownership of the company among funds covered by us came down by five and the aggregate value of hedge funds’ holdings in the company’s stock also declined by over 35%. Nonetheless, Archrock Inc (NYSE:AROC) still ended up being one of the most hoarded stocks among hedge funds as of the end of September, with them owning over 32% of its shares. Ken Griffin‘s Citadel Investment Group was one of the funds that reduced its stake (by 53%) in Archrock Inc during the third quarter; it held 847,067 shares of the company as of September 30.

Commscope Holding Company Inc (NASDAQ:COMM)

 – Investors with Long Positions (September 30): 41

 – Aggregate Value of Investors’ Holdings (September 30): $2 Billion

 – Common Stock of The Company Owned By Investors (as of September 30): 35.10%

Wireless infrastructure provider Commscope Holding Company Inc (NASDAQ:COMM) has been slumping over the past few weeks, but the stock is still trading up by 13.27% year-to-date. The popularity of the company was on the rise during the third quarter, with three more investors among those that we track reporting a stake in Commscope Holding Company Inc (NASDAQ:COMM) by the end of the quarter, while the aggregate value of their holdings in the company increased by $124 million. For the third quarter, the company reported EPS of $0.53 on revenue of $972.60 million, beating EPS estimates of $0.50, but falling short of the $1.07 billion revenue estimates. Bob Peck and Andy Raab‘s FPR Partners initiated a stake in Commscope Holding Company Inc during the July-to-September period by purchasing almost 4.0 million shares of the company.

Take-Two Interactive Software, Inc. (NASDAQ:TTWO)

 – Investors with Long Positions (September 30): 35

 – Aggregate Value of Investors’ Holdings (September 30): $905 million

 – Common Stock of The Company Owned By Investors (as of September 30): 36.90%

It’s not hard to understand why funds are hoarding shares of gaming company Take-Two Interactive Software, Inc. (NASDAQ:TTWO); its stock has been on a perpetual uptrend during the last three years and is currently trading up by almost 25% this year. Interestingly, although the number of funds tracked by us that were long the stock dropped by five during the third quarter, the aggregate value of hedge funds’ holdings in Take-Two Interactive Software, Inc. (NASDAQ:TTWO) saw an increase of $28 million during the same period. On November 5, the company reported its fiscal year 2016 second-quarter results, declaring EPS of $0.30 on revenue of $364.90 million, easily beating analyst expectations of EPS of $0.15 on revenue of $319.83 million. Following the earnings release, on November 8, analysts at Sterne Agee CRT reitearted their ‘Buy’ rating on the stock, while upping their price target on it to $39 from $35. With ownership of over 4.1 million shares of Take-Two Interactive Software, Inc., David Einhorn‘s Greenlight Capital was the largest shareholder of the company in our database at the end of September.

Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA)

 – Investors with Long Positions (September 30): 27

 – Aggregate Value of Investors’ Holdings (September 30): $622 million

 – Common Stock of The Company Owned By Investors (as of September 30): 37.5%

Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA)’s stock has been quite volatile this year. Even after suffering a heavy decline in the third quarter, it currently trades up over 10% year-to-date. During the third quarter, when shares of the company fell by more than 30%, the number of hedge funds covered by us that owned shares of the company declined by six and the aggregate value of investors’ holdings in the stock dropped by almost 37%. However, looking at the percentage of outstanding shares of the company owned by hedge funds we cover, it’s clear that there’s still a lot of conviction in the stock. D E Shaw, founded by billionaire David E. Shaw, reduced its stake in the company by 10% to slightly over 3.0 million shares during the third quarter.

AerCap Holdings N.V. (NYSE:AER)

 – Investors with Long Positions (September 30): 77

 – Aggregate Value of Investors’ Holdings (September 30): $2.99 billion

 – Common Stock of The Company Owned By Investors (as of September 30): 39.70%

Aircraft leasing company AerCap Holdings N.V. (NYSE:AER) experienced an unusual third quarter, as while the number of funds that were long the company remained constant quarter-over-quarter at 77, the aggregate value of hedge funds’ holdings in it declined by over $1.1 billion during the same period. The stock of AerCap Holdings N.V. (NYSE:AER) made its lifetime high of $51.50 in June and even after declining by 20% since then, is still up by 4% this year. The company is currently trading at a forward price-to-earnings multiple of just 6.71, which is significantly cheaper than its peers. On November 13, analysts at JPMorgan Chase & Co. reiterated their ‘Overweight’ rating on the stock, while upping their price target on it to $54 from $52. Billionaire Ken Griffin‘s Citadel Investment Group reduced its stake in the company by 19% to 5.6 million shares during the July-to-September period.

Disclosures: None