Billionaire D.E. Shaw filed his 13F with the SEC in mid-November, revealing a renewed interest in tech. D.E. Shaw trades using systematic and computer driven methods and now has around $26 billion in invested capital. Shaw also makes a habit of hiring from the math and physics area, opposed to the financial sector. Below are five of Shaw’s favorite tech stocks – they range from search to e-commerce (check out D.E. Shaw’s full equity portfolio).
International Business Machines Corp. (NYSE:IBM) is Shaw’s fifth largest 13F holding and is expected to see revenues down 3% this year. Hardware sales have been weak for the tech company, but new product introductions should help drive growth, namely software sales. Part of what is boosting the company has been growth in emerging markets. IBM also trades on the cheap end of the tech industry at 14x earnings, compared to Oracle (16x) and SAP (25x), which are more expensive. Billionaire Warren Buffett is IBM’s top fund owner with nearly 20% of his 13F portfolio invested in the tech stock (check out Warren Buffett’s top picks).
Yahoo! Inc. (NASDAQ:YHOO), meanwhile, is quite the turnaround story, with revenues expected to be up 3% annually through 2014. Demand for display advertising has put pressure on the company, but its well-known global brand and 700 million users should help it to better penetrate the mobile market. Yahoo’s search partnership with Microsoft – where Microsoft powers Yahoo’s search results – has allowed the company to focus on other tech initiatives. The stock trades well below its peers on a P/E basis at 6x earnings, compared to Google (22x) and Microsoft (14x). Interestingly, David Einhorn added Yahoo to his portfolio last quarter (check out David Einhorn’s big bets).
Cisco Systems, Inc. (NASDAQ:CSCO) is a mammoth communications equipment company that saw a 7% sales increase in FY2012, and is expected to advance another 7% in 2013. These strong sales increases should be driven by the company’s entry into the cloud computing market, in addition to development of new products for data centers. The other secular long-term driver for Cisco is a continued rise in bandwidth usage. The tech company also recently boosted its dividend by 75%; it now yields 2.9%. Cisco trades at only 13x earnings, below both Ericsson (16x) and Motorola Solutions (24x). Jim Simons’ hedge fund took a new stake in this tech giant last quarter (see Jim Simons’ top picks).
What are picks No. 4 and 5?
Qualcomm, Inc. (NASDAQ:QCOM) is one of the best growth stocks operating in the semiconductor industry. Revenues are expected to be up 25% in FY2013 and 10% in FY2014. This expansion should come from high-end chips and greater penetration of the smartphone market. The tech company’s gross margins remain robust at 60%, and handset and chipset sales continue to accelerate. From a valuation standpoint, Qualcomm trades as one of the cheapest stocks in the industry, especially when coupled with its growth prospects. Qualcomm trades at only 20x earnings, where Broadcom is at 26x and Texas Instruments is at 20x. The stock also trades at an undervalued PEG ratio of 0.97.
Amazon.com, Inc. (NASDAQ:AMZN) is one of the riches tech stocks around, trading at a P/E of over 3,000x. This e-commerce company has been steadily taking market share from a number of retailers, and expects sales to be up 30% in 2013 after a projected 30% increase in 2012. Helping further expand Amazon’s market share should be international expansion and new hardware offerings, namely via the Kindle Fire. Amazon also expects a $0.37 impairment charge related to its investment in LivingSocial, but will still post 2013 EPS of $1.74. We consider AMZN a best-in-class retailer that we expect to generate significant free cash flow to make acquisitions or embark on a number of revenue lines. Billionaire Ken Fisher – founder of Fisher Asset Management – is Amazon’s top fund owner, with over 2.5 million shares invested (check out Ken Fisher’s newest picks).
In short, it’s clear that D.E. Shaw has taken a solid interest in the tech field. This includes investments in a variety of sub-industries from search, e-commerce, to computer hardware/software. All of these companies present solid growth opportunities at fairly reasonable valuations. For more related coverage, continue reading here:
Is Yahoo worth buying in 2013?
