Top 5 Semiconductor Companies Loved by Hedge Funds

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Hedge fund activity is an important indicator to follow. On an aggregate level, individual investors can use the smart money’s sentiment toward a particular stock as a general indicator of whether or not to be bullish. At Insider Monkey, our empirical research shows that individuals who mimic hedge funds can beat the market by double-digits annually (see the details of our market-beating strategy here).

S&P holds an optimistic outlook for the semiconductors industry over the next year, citing that “a fairly lean inventory supply chain [is expected] to leave the supply-demand balance even-to-slightly favorable for inventory replenishment,” forecasting growth of 4%. By using 13F filings from the SEC, we can chronicle just how the hedge fund industry’s top players are playing this trend.

Of the 400+ hedge funds we track, Intel (NASDAQ: INTC) was the most loved semiconductor company at the end of the last filing period, with 44 funds invested. Intel was down in 2012, but has been a relatively good investment since the start of the New Year, gaining 7.1% year-to-date. This appreciation seems to be a factor of anticipation of the company’s Q4 earnings and buzz over its CES mobile unveiling.

The company reports its earnings this Thursday, and analysts are expecting a 30% growth in Intel’s bottom line, totaling a 45-cent EPS. Intel is looking to make it a perfect four-for-four in terms of EPS beats in its 2012 fiscal year, and at a mere 11.3 times forward earnings investors could see a value-based appreciation in the near future.

In second place, we have Broadcom (NASDAQ: BRCM), with 32 hedge funds holding positions in the key Apple supplier. We’ve covered Broadcom before (see Broadcom: More Than Just an Apple Supplier), but the bullish thesis surrounding this chipmaker seems to boil down to one thing: 5G WiFi. Broadcom was the first to introduce the chip last year and is one step ahead of its competitors in 2013.

The company recently announced that it would power LG’s newest smart TV, and that it would manufacture its own set-top box with 5G WiFi. Partnerships with Samsung, NetGear and Comcast also bode well for Broadcom’s future, and it’s a possibility that more Apple connectivity is in store. At a forward P/E below 12x, there’s obvious value to be had with Broadcom’s outstanding growth potential.

Tied with Broadcom is Marvell Technology Group (NASDAQ: MRVL), the hard disk drive chipmaker. Marvell’s key advantages are its robust patent portfolio and strong positioning in the HDD market, but it is also making headway in the WiFi chipset arena. Microsoft’s Surface tablet has a Marvell WiFi chip, which was a move that surprised some tech analysts. At undervalued book (0.9x), cash (2.3x) and forward earnings (12.0x) multiples, investors can still snatch up a company that is up nearly 20% since the start of 2013. A dividend yield of 2.7% isn’t a bad payout for income-seekers either.

In fourth, we have NVIDIA (NASDAQ: NVDA), with 29 hedge funds holding long positions. Nvidia focuses on graphics chip technology used in everything from PCs to PlayStations. The company grew its bottom line by a decent 4.3% a year over the past half-decade, but the sell-side expects this growth to accelerate over the next five years, averaging close to 10% annually. At a PEG near 1.4, Nvidia is cheaper than Marvell (1.9) and Broadcom (1.9), so there’s clear value here. Going forward, bulls can also be excited about the company’s Tegra 4 mobile processor, which was introduced at CES.

Last but certainly not least, fifth on our list is Micron Technology (NASDAQ: MU), with 28 funds invested. Micron may be known for its dynamic random-access memory technology, but the company has been diversifying its operations, with ventures into the NAND flash memory arena. A recent acquisition of Japanese Elpida Memory is expected to boost Micron’s bottom line. Analysts expect EPS to grow by a whopping 192% over the next year, and they forecast five-year annual growth to come in around 13-14%.

For a longer look at Micron Technology, check out all of the hedge funds invested in the company on Insider Monkey.


This article is written by Jake Mann and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool recommends Intel and NVIDIA. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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