Microsoft tied with Hewlett-Packard as the foremost stock pick by hedge fund Gurus in the third quarter of 2011. Fourteen gurus bought or added to their positions in the stock, with the largest position held by Dodge & Cox, with 58,335,243 shares. It is also 9.89% of Seth Klarman’s total assets managed, and 8.08% of David Einhorn’s total assets managed. Warren Buffett said on NBC in November that he could not buy Microsoft because of his friendship with its founder, Bill Gates.
Gurus may be flocking to Microsoft due to its 14% 10-year earnings growth, near historical low valuations, and record free cash flow. The company has also been buying back shares annually for the past six years, and raising its dividend annually since 2007. Microsoft has returned over $170 billion back to shareholders in the last 10 years.
The company also benefited from its Kinect, which the Guinness Book of World Records named the fastest-selling consumer electronics device in history, and which helped Entertainment & Devices division revenue 45% to $9 billion in fiscal 2011.
Fourteen Gurus also own Hewlett-Packard. The company accounts for 15.4% of Seth Klarman’s portfolio (a new buy for him), and Dodge & Cox has the most shares with 117,143,196.
Hewlett-Packard has 20% five-year earnings growth, while revenue has increased every year for a decade, and generated positive free cash flow that increased from $8.4 billion in 2010 to $9 billion in 2011. The company is also below or near its historical-low valuations.
Hewlett-Packard in September named Meg Whitman, former CEO of eBay, as its new president and CEO. The next month she canceled the company’s previous plan to spin-off its personal computer segment, which is the No. 1 manufacturer of personal computers in the world. The previous was announced as part of its “Company Transformation” initiated in August. The plan also included imperatives to move HP into higher value, higher margin growth categories; sharpen its focus to the cloud, solutions software with an emphasis on enterprise, commercial and government markets and increase investment in innovation.
For 2011, HP’s net income fell 19% from a year ago, while revenue rose 1%. On its year-end conference call, Whitman said that the company needs to “get out of the news cycle and reduce the drama.”
Eleven Gurus bought or added to their position in Google in the third quarter. It is 14.5% of Glen Greenberg’s portfolio, and Chris Davis has the largest position with 25,161,128 shares.
Google’s revenue increased 33% in the third quarter 2011 compared to the third quarter 2010. Google sites generated 69% of revenues, and Google network revenues generated 27% of total revenues. International revenues accounted for 55% of total revenues, up one percent year over year.
Google announced in August that it would acquire Motorola Mobility for $12.5 billion, which prompted Standard & Poor’s to downgrade Google’s stock rating from “buy” to “sell.” “Moreover, despite MMI’s extensive and valuable patent portfolio, we are not sure it will protect Android from IP issues. We also believe the purchase of MMI would negatively impact GOOG’s growth, margins and balance sheet,” S&P equity analyst Scott Kessler said.
Google Android phone sales increased in the third quarter, becoming the best-selling phone, according to Gartner Inc. It also surpassed its 40 million user mark for its Google+ in the third quarter.
Seven Gurus bought or added shares of Apple in the third quarter. Apple accounts for 10.7% of David Einhorn’s portfolio, and Steve Mandel has the largest holding, with 2,059,427 shares.
Apple’s stock price has risen 21% year to date, and it is not particularly cheap relative to its valuations. The company has grown its earnings at an annual rate of 112% over the last ten years and one of the highest earnings per share in the industry at about $28. Free cash flow also jumped from $16.6 billion in 2010 to $33 billion in 2011.
The company’s iPhone sales continue to skyrocket, with 21% unit growth in its fourth quarter compared to the previous year, as well as a 166% unit increase in iPad sales, and 26% unit increase in Mac sales. iPod sales declined 27%.
Apple’s sales estimates for its iPad were cut by 1 million units for the next quarter due to the launch of the Kindle Fire, according to a research note from Canaccord Genuity. However, iPhone sales will be launched globally that should have strong sales.
To see more stocks hedge funds are buying in different sectors, go here.