Three Tech Giants Are Losing Ground Today; Which One Hedge Funds Suggest You Should Buy?

With third quarter earnings season around the corner and increased uncertainty about the timing of the first interest rate hike by the Federal Reserve, the U.S. stock market has dipped into the red today and has dragged three giants of the tech industry along. Apple Inc. (NASDAQ:AAPL) is down by roughly 1% despite record first weekend sales of the company’s new smartphone duo: iPhone 6S and 6S Plus. Shares of Facebook Inc (NASDAQ:FB) have also taken a hit in the first hours of trading, as the company announced new advertising products in a bid to lure customers away from TV advertising. Wall Street was not particularly impressed with the latest announcement from Sunedison Inc (NYSE:SUNE) either. The company has today revealed the launch of three solar canopy systems for the city of Fremont, CA, which will generate 1.2 megawatts of clean energy. Hedge funds sentiment towards Facebook and Sunedison improved during the second quarter, while the popularity of Apple has faded a bit.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6.0 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 60 percentage points (118% return vs. S&P 500’s 58% gain) over the last 36 months (see the details here).

Although Apple Inc. (NASDAQ:AAPL) managed to sell approximately 13 million iPhones during the first three days, 30% higher than last year, analysts have pointed out to the fact that the devices were launched in 12 countries, as opposed to 10 countries in 2014. They believe this was a key factor that influenced the sales numbers and have played down the importance of the record sales figure. Starting October 9, the new iPhones will be available in 40 additional countries.

The popularity of the Cupertino-based giant among the hedge funds we follow has decreased during the second quarter of 2015, as the number of funds invested in Apple Inc. (NASDAQ:AAPL) dropped to 144 from 150 at the end of the first quarter. Their pooled investment carried a value of $21.2 billion, down by 1.1% for the quarter, and accounting for less than 3% of the company’s total number of shares outstanding. Carl Icahn, a big time Apple fan, has remained unfazed and has kept his place as the top shareholder of the stock, reporting ownership of 52.7 million shares in its latest 13F filing. Philippe Laffont is also bullish on the stock, increasing his investment by 12% during the quarter to 8.54 million shares.

With web-based advertising still lagging behind television advertising, Facebook Inc (NASDAQ:FB) has introduced a new product that allows advertisers to buy ads on the social network the same way they buy TV commercials in a bid to close the gap between the two. Although Facebook has managed to generate impressive revenues from ad sales, this time they might have bitten more than they can chew. Investors are not convinced advertising money is ready to switch from TV spots to online ads and believe the company should stick to what they know and do best.

Facebook Inc (NASDAQ:FB) is the third most popular company among the hedge funds we track, which own roughly 3.7% of the company’s common stock as of the end of June. During the second quarter, the number of funds holding the stock has increased to 133 from 129, while the total value of their investments rose by 25% to more than $8.85 billion. Lone Pine Capital is the biggest holder among the funds we follow, as Stephen Mandel increased his investment in the tech giant by 21% to 9.76 million shares. Billionaire Ken Griffin is also very bullish on the stock, having boosted his stake by 176% during the same period of time, with Citadel Investment Group holding 5.06 million shares at the end of the quarter.

Sunedison Inc (NYSE:SUNE) has been investing massively in its core business as well as buying wind companies and solar developers over the last few years and has now become the biggest renewable energy development company in the world. Revenues, however, have not kept pace and worries about the company’s ability to generate profits in the long term have driven the stock lower, losing 78% of its value in the last three months.

Dan Loeb, the manager of Third Point, sees some potential in Sunedison Inc (NYSE:SUNE) and has increased his stake by roughly a quarter, taking it to 12.4 million shares at the end of June. Stephen Mandel, on the other hand, has decided to reduce his exposure to the stock, cutting his investment by 14% to 9.66 million shares. The overall hedge fund sentiment toward Sunedison is mixed as the number of funds holding shares has decreased by one to 93, while the value of their aggregate holdings has increased by 27.7% to $5.67 billion and accounts for 69.1% of the company’s common stock.

Disclosure: none.