The disappointing sales of its Fire Phone last year, which led Amazon.com, Inc. (NASDAQ:AMZN) to announce a $170 million write-down in October owing to unsold inventory hasn’t discouraged Jeff Bezos from pursuing its ambitions for a larger share in the smartphone and tablet space. Taking the price war to a new level, the $233.39 billion e-commerce giant has decided to launch a $50 tablet with a 6-inch screen, according to people familiar with the matter, cited by The Wall Street Journal. Of course, there are compromises made at this price, which is nearly 50% lower than Amazon.com, Inc. (NASDAQ:AMZN)’s cheapest Fire tablet, in terms of screen resolution, battery life, or even the mono speaker as compared to stereo for the most of the mid-priced tablets currently available on the market. Most of the development of the new tablet was outsourced overseas to Shanghai Huaqin Telecom Technology Co. and Taiwan’s Compal Communications Inc., while Amazon’s Lab 126, the unit responsible for cutting edge technology products that went through a considerable reorganization and layoffs after the Fire phone flop, also contributed to the development of the new budget device. Currently, there are several $50, 7-inch tablets, sold through online retailers including Amazon, under less known brands like RCA, Ematic and Ares. Besides the low cost tablet, Amazon.com, Inc. (NASDAQ:AMZN) is also planning to launch 8-inch and 10-inch versions of its more expensive line of tablets. According to the research firm IDC cited by the WSJ, Amazon’s market share of the tablet market is less than 1%, while Apple Inc. (NASDAQ:AAPL) and Samsung together hold 42%.
Professional money managers have been betting big on Amazon, which is not a surprise, considering that the stock price is up by more than 60% on a year-to-date basis. The enthusiasm remained high during the second quarter, when the number of hedge funds with long positions in Amazon.com, Inc. (NASDAQ:AMZN) increased to 103, while the aggregate value of their investments went up to $10.46 billion at the end of June, as compared to 96 funds holding $8.40 billion worth of stock at the end of the first quarter.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are not 100% long, so they are likely to underperform the market in a bull environment. We ignore their short positions and by imitating hedge funds’ stock picks and our research has shown that hedge funds’ long positions generate strong risk-adjusted returns. For instance, 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 118% over the last 36 months and outperformed the S&P 500 Index by some 60 percentage points (see more details here).
More specifically, among the funds that we track, Ken Fisher‘s Fisher Asset Management is the largest shareholder of the company, and increased its stake by 2% during the second trimester to 2.49 million shares valued at $1.08 billion. On Fisher’s heels is Andreas Halvorsen‘s Viking Global, which initiated a stake of 2.28 million shares valued at $990.84 million during the same period. Philippe Laffont‘s Coatue Management boosted its stake the most among Amazon.com, Inc. (NASDAQ:AMZN)’s top 10 shareholders and, after a 157% hike, it held about 760,700 shares valued at $330.22 million.
Insider trading is another useful complimentary metric that can help in investing decisions, which is why we track such transactions as well at Insider Monkey. While there have been no insider purchases for Amazon.com, Inc. (NASDAQ:AMZN) so far this year, prominent insider sales include one made by Patricia Stonesifer, a director, who disposed of more than 6,200 shares this month and Senior Vice President Jeffrey Wilke who sold about 9,700 shares last month.
Amazon’s plans to launch a new tablet seem ambitious and if the company will not repeat the same mistakes it made with the smartphone, it is likely to succeed to capture more market share. Meanwhile the confidence that hedge funds display regarding the company, suggest that Amazon is a good stock to own for the long-term.
Disclosure: None
