The prediction business isn’t easy. Shares of Intel Corporation (NASDAQ:INTC) rallied hard into earnings as investors expected strong results on the back of optimistic analyst channel checks and Windows 10’s recent launch. The actual results weren’t quite as rosy as expected and Intel shares fell 2.78% in extended market trading as a result. Meanwhile, investors were fading Linear Technology Corporation (NASDAQ:LLTC) into earnings, expecting disappointing results. Instead, the company issued strong guidance and shares of Linear Technology rallied 3.97% in extended market trading. Given earnings reports are one of the best indicators of future stock returns, let’s take a closer look at the two semiconductor companies’ quarterly results and analyze what top investors think of them.
We mention the portfolios of elite investors because our research has shown that elite funds are extremely talented at picking stocks on the long side of those portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
For its third quarter, Intel Corporation (NASDAQ:INTC) earned $0.64 per share on revenues of $14.8 billion, beating EPS expectations of $0.59 and expected revenues of $14.22 billion. Gross margin was 63%, down by 2 percentage points year-over-year, while quarterly revenue was approximately flat year-over-year, with servers and the Internet of Things offsetting a declining PC business. Guidance is in line with analyst expectations.
CEO Brian Brzanich said:
Despite ongoing macroeconomic headwinds, there are signs that the PC market is beginning to stabilize and we continue to benefit from a strategy designed to capitalize on the growing need for the infrastructure that powers the smart and connected world.
All in all, the earnings report wasn’t bad. Given the dividend yield of 3%, the company’s wide moat, and the reasonably cheap valuation of 13.8 times forward earnings, Intel is a good long-term holding. People are still going to buy PC’s and Intel will still dominate that market. Although Intel missed the boat in mobile, it has a golden opportunity in the Internet of Things and the cloud. Management just needs to execute and not overpay for big acquisitions.
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According to our database of around 730 funds, the smart money is cautious on Intel Corporation (NASDAQ:INTC). The total number of hedge fund investors long Intel Corporation (NASDAQ:INTC) declined to 48 at the end of June from 61 at the end of March, while the total value of hedge funds’ holdings decreased to $4.2 billion (2.9% of the float) from $5.2 billion on March 31. Among the hedge funds that cut their positions in the second quarter were First Eagle Investment Management, which trimmed its holding by 2% to 28.48 million shares, and Richard Pzena’s Pzena Investment Management, which pared its stake by 4% to 11.24 million shares.
