Welch Capital Partners’ Top Tech Picks

Leighton Welch‘s Welch Capital Partners is a long/short hedge fund focused on fundamental valuation, with a focus on healthcare, technology, energy, and industrial companies. According to the firm, Leighton Welch directs a “cash flow driven investment strategy with a top down macro overlay,” and has a public equity portfolio worth $294.15 million as of September 30. Given that Welch Capital Partners just filed its 13F, let’s take a closer look at the fund’s top tech picks of Check Point Software Technologies Ltd. (NASDAQ:CHKP), Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL), Oracle Corporation (NYSE:ORCL), and Altera Corporation (NASDAQ:ALTR).

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Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.6% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

#5 Altera Corporation (NASDAQ:ALTR)

Shares held (as of September 30): 183,663
Total Value (as of September 30): $9.2 million
Percent of Portfolio (as of September 30): 3.13%

European Union regulators approved Intel Corporation (NASDAQ:INTC)’s $54 per share acquisition of Altera Corporation (NASDAQ:ALTR) in October. The approval follows the Department of Justice’s approval of the merger in September. Given Altera’s stock price of $52.63, the market is implying the deal will very likely successfully close. Shareholders long Altera can still capture $1.37 per share in profits when (and if) the deal closes in two or three quarters.

#4 Alphabet Inc (NASDAQ:GOOGL)

Shares held (as of September 30): 19,190
Total Value (as of September 30): $11.68 million
Percent of Portfolio (as of September 30): 3.97%

Alphabet Inc (NASDAQ:GOOGL) may be under regulatory pressure from Europe and Russia, but it still dominates the highly profitable market of internet search. Earnings for the third quarter were fantastic, with the company beating analysts’ top and bottom line expectations, and paid clicks growing at a healthy 23% year-over-year. Given Alphabet’s size, growth will be slower than previous years, but there is plenty of potential in automated cars, virtual reality, and artificial intelligence. Connecting the other half of the world’s population and increasing internet connection speeds will also add to growth. Given the internet giant’s wide moat and reasonable forward P/E of 20.76, shares of Alphabet Inc are a good bet for long-term holders.

#3 Apple Inc. (NASDAQ:AAPL)

Shares held (as of September 30): 109,259
Total Value (as of September 30): $12.05 million
Percent of Portfolio (as of September 30): 4.10%

Welch Capital Partners increased its position in Apple Inc. (NASDAQ:AAPL) by 407% to 109,259 shares as shares of the tech giant retreated due to the broader market correction and concerns about China’s growth. Those China concerns may be overblown, however, as Apple’s fourth quarter iPhone revenues rose by 120% year-over-year in the country, indicating that Apple’s iPhone continues to be in demand more than previously anticipated. Though China is still a growth market for the company, the data could nonetheless help change the market’s view that Apple has unsustainable profits. Meanwhile, the company continues to buy back tens of billions of dollars worth of its stock every quarter. Carl Icahn’s Icahn Capital LP owned 52.76 million Apple shares at the end of June.

#2 Check Point Software Technologies Ltd. (NASDAQ:CHKP)

Shares held (as of September 30): 160,210
Total Value (as of September 30): $12.71 million
Percent of Portfolio (as of September 30): 4.32%

Check Point Software Technologies Ltd. (NASDAQ:CHKP) reported third quarter earnings of $1.04 per share on revenues of $403.86 million, beating estimates by $0.06 per share and $0.9 million, respectively. Guidance was solid, with management expecting fourth quarter EPS of $1.10-to-$1.18 versus estimates of $1.11 per share. Deferred revenue rose by 17% year-over-year to $772 million and the company bought back $250 million of stock in the quarter. Analysts think there is some upside left, as 14 analysts have a ‘Buy’ rating, two have a ‘Sell’ rating, and seven have a ‘Hold’ rating. Overall, analysts have a consensus price target of $92.12 per share, giving shares an upside of 10.96% from current levels. David Blood and Al Gore‘s Generation Investment Management owned 5.81 million shares of the company at the end of June.

#1 Oracle Corporation (NYSE:ORCL)

Shares held (as of September 30): 432,951
Total Value (as of September 30): $15.64 million
Percent of Portfolio (as of September 30): 5.32%

Oracle Corporation (NYSE:ORCL) still dominates the market of mission critical databases. Given its M&A over the past decade, the company also dominates several other lucrative enterprise categories too. Open sourced alternatives in NoSQL and relational databases will always threaten, but as long as Oracle innovates, shareholders have nothing to fear. Shares are down by 14.79% year-to-date, but trade at a bargain-priced 13.12-times forward earnings. Analysts don’t think Oracle’s earnings will grow as fast as they once did, but Oracle has proven them wrong before. Eagle Capital Management owned 42.24 million shares of Oracle at the end of the second quarter.

Disclosure: None