Generation Investment Management (GIM), founded in 2004 by David Blood and Al Gore is a long-only equity hedge fund managing a public equity portfolio valued at $7.17 billion as of March 31. The fund has a strong presence in technology stocks, with them representing 45% of the value of its portfolio, while healthcare stocks made up another large chunk, at 29%. Gore, the former vice president, works at the fund one day per week. Given its expertise and focus on tech, we’ll look at the fund’s top tech stock picks in this article.
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. These 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. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 144% over the last 32 months, which is more than 84 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
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According to the fund’s 13F filing for the reporting period of March 31, Blood and Gore (it sure sounds macabre, but their returns have been anything but) decreased their stake in the Israel-based software security company Check Point Software Technologies Ltd. (NASDAQ:CHKP) by 9% to 6.51 million shares with a market value of $533.72 million. Following the decrease Check Point Software Technologies Ltd. (NASDAQ:CHKP) represented 7.44% of the public equity portfolio held by the fund managers, who still maintained their position as the largest shareholders in the company among the funds we track. Shareholders of Check Point Software, which was founded in 1993 and carries a market cap of $15.24 billion, have enjoyed solid returns of 6.8% year-to-date (YTD) and 29.7% over the last 12 months.
On July 22, Check Point Software Technologies Ltd. (NASDAQ:CHKP) is scheduled to publish its financial results for the second quarter. Analysts estimate earnings per share (EPS) of $0.87, compared to the earnings of $0.86 it posted for the first quarter, which beat analysts’ estimates by $0.02, though they slid by $0.05 on a year-over-year basis. Analysts have assigned an average target price for Check Point Software of $84.61, representing limited upside potential of just 1%. Nonetheless, another hedge fund that is bullish on Check Point Software is David Cohen and Harold Levy‘s Iridian Asset Management, which holds a stake of 2.96 million shares as of March 31.
Blood and Gore’s investment in California-based Linear Technology Corporation (NASDAQ:LLTC) was increased by 1% to 9.57 million shares valued at $447.83 million and representing 6.24% of GIM’s public equity portfolio. The $11.8 billion market cap company, founded in 1981, has returned 3.5% during the first five months of this year and only 2.6% during the last 12 months, which is well behind the S&P 500. On July 28 Linear Technology Corporation (NASDAQ:LLTC) will report its earnings for the second quarter of 2015 with analysts expecting $0.56. JP Morgan analysts set a price target for Linear Technology Corporation (NASDAQ:LLTC) of $48.00 at the end of May and a “Neutral” rating, given its exposure to the industrial and automobile segments. That price target again leaves limited perceived room to the upside, of about 1.5%. Given their long-term focus, Blood and Gore may see potential in these stocks that transcends their near-future results. GIM was also among the largest shareholders of this stock among the hedge funds we track, surpassed only by Jean-Marie Eveillard‘s First Eagle Investment Management, which owns 12.33 million shares.
GIM also decreased its stake in another of its top tech stocks, this time the California-based Qualcomm, Inc (NASDAQ:QCOM), by 6% to 6.34 million shares with a value of $439.85 million. Qualcomm, Inc (NASDAQ:QCOM), founded in 1985, and with a market cap of almost $113 billion has been having a poor run of late, posting a negative return of 6.9% during 2015, and an even worse 12-month performance of -14%. Those negative returns are due to the loss of Samsung as a client and trouble with regulatory matters in the Chinese market, troubles that are now said to be resolved.
Qualcomm, Inc (NASDAQ:QCOM) has also suffered due to major smartphone companies like Apple Inc. (NASDAQ:AAPL) and Samsung switching to in-house chip production, cutting off an important market segment for the company. However, analysts say that the robotics startup program that Qualcomm has launched may grow into an important new business segment for it. Furthermore, Qualcomm’s announcement regarding an increased dividend payment of $1.92 per share annually, which is an increase of 14%, has made the market moderately positive regarding the future of the stock, as has its $15 billion share buyback plan. It seems like JANA Partners, which we also track, agrees, since it has built a 28.54 million-share stake in Qualcomm and laid out steps the company could take to improvement profitability and shareholder returns. Orbis Investment led by Willam B. Gray also seemingly believes in Qualcomm’s direction, as it upped its stake by 50% to 11.16 million shares during the first quarter.
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