BALTIMORE ( Stockpickr) -- Love is in the air on Wall Street this Valentine's Day -- just maybe not the way you think.
No, I'm not talking about hedge fund managers' personal lives. I'm talking about their portfolios.
Pro investors' favorite stocks are telling right now, especially given the big sentiment swings we've been seeing in the broad market for the last couple of months. So it's interesting to know that institutional investors went on a buying spree last quarter, picking up big stakes in new names, and adding onto old favorites. In particular, their buying points to a lot of conviction in the technology and industrials sectors.
But what's more interesting is the specific stocks they're buying. To figure that out, we've got to take a closer look at 13F filings.
Institutional investors with more than $100 million in assets are required to file a 13F -- a form that breaks down their stock positions for public consumption. From hedge funds to mutual funds to insurance companies, any professional investors who manage more than that $100 million watermark are required to file a 13F.
In total, approximately 3,400 firms file 13F forms each quarter, and by comparing one quarter's filing with another, we can see how any single fund manager is moving their portfolio around. While the data is generally delayed by about a quarter, that's not necessarily a bad thing. Research shows that applying a lag to institutional holdings can generate positive alpha in some cases. That's all the more reason to crack open the moves being made with pro investors' $17.6 trillion under management.
Today, we'll focus on hedge funds' favorite stocks.
First up is Twitter (TWTR), the micro-blogging platform that went public late last year. Twitter's short messaging service has been a disruptive force in how people communicate -- and how brands communicate.
The firm's ability to monetize its 240 million monthly active users is the reason why fund managers are in love with shares. Funds picked up 30.7 million shares of Twitter in the last quarter, for a $1.95 billion collective stake.
Twitter earns around 90% of its revenue from advertising, a service that the site seems practically purpose-built for. Users self-select into networks based on interests, giving advertisers valuable targeting data that they can use to capture bigger returns on advertising investments -- and that Twitter can charge higher rates for. Because of the time-critical nature of twitter messages, companies are likely to allocate a disproportionate amount of daily marketing efforts to Twitter, a fact that parlays into greater importance when it comes to marketing budgets.
All of that said, there are still a lot of unknowns about Twitter right now. While the firm has been able to wring out impressive revenues per user, its smaller user base means that it has a lot of room that it needs to grow into its valuation. Likewise, its heavy VC participation pre-IPO means that the stock is likely to see a lot of pressure when the lockup period expires (in tranches this month and in May).
Hedge funds may be in love with Twitter right now, but the rest of us may want to play hard to get until some of those questions get answered.
From one of the hottest growth IPO names to one of the bluest blue-chips -- funds fell in love again with General Electric (GE) this past quarter. Funds picked up 4.01 million shares of the industrial conglomerate for the quarter, boosting their total bet on the stock to $10.2 billion. That's a conviction bet, alright.
GE is one of the biggest industrial names in the world, with a hand in everything from making jet engines to wind turbines to medical equipment. Those businesses actually work together quite well. The firm has found considerable success in making the pieces of the puzzle fit together by sharing technologies and customers across its business lines. As the economy goes, so goes GE. The firm's mainstay products are extremely capital-intense, so the healthy flow of credit is critical to GE's success.
Credit is so critical to GE's success, in fact, that it made its GE Capital lending arm one of the biggest parts of the business. That's about to change, however. The firm plans to spin off its North American consumer finance arm in a big IPO later this year. That deal should unlock considerable value for shareholders, and hedge funds are clearly excited about it. With the broad market still looking very bullish, we're looking at an optimal time for any IPO candidates to fetch top dollar.
Investors could do a lot worse than GE in 2014.
American Express (AXP) isn't your typical credit card company. And that's a good thing.
For starters, Amex isn't just a payment network -- it's also the lender behind the logo on many of its cards. That means that the firm carries credit risk on its balance sheet, but it also means that the firm can collect a bigger piece of the fee pie. And with a flagship charge card offering that's paid off each month, those credit risk concerns are greatly reduced versus a conventional card issuer. As American Express expands its reach with third party issuers, expect sales to continue to ramp up without the risk.
American express is the third-largest card network, but because the firm courts higher-spending consumers and businesses, it actually attracts more dollar volume than its more popular rivals. New recently announced initiatives should improve Amex's one weak spot: acceptance rates at smaller merchants. So, as spending continues to climb higher in 2014, American Express should continue to benefit.
Hedge funds certainly like the idea. In the last quarter, funds picked up another 2.4 million shares for a total bet of $4.7 billion on the firm.
After taking the full-force brunt of the semiconductor slump in the last couple of years, Intel (INTC) is heading into 2014 in an uptrend -- even if it was masked by the big correction in January.
Intel has, perhaps surprisingly, become known as an income stock. The firm pays out a hefty 3.7% dividend yield at current price levels, enough to catch the attention of even the most traditional income investor. But Intel has more to offer than that.
Intel is the biggest microchip maker in the world, with an 80% share of the microprocessor market. While many of Intel's biggest customers in the PC business have seen their margins evaporate, Intel hasn't -- but it still has its sights set on the lucrative high-turnover mobile device market. The firm's strategy of taking its powerful processor architectures and scaling down the power needs is one that's particularly appealing to OEMs who want serious chip speed without the battery drain. If Intel's Atom mobile chips can make their way into more devices, the firm can buck the headwinds of consumers trading PCs for tablets.
I struggle to call Intel cheap at current levels, but it's certainly cheaper than most tech sector names right now. The firm's shares trade for just 12.8 times earnings, and Intel carries more than $14 billion in net cash and investments. That, coupled with a big dividend check, has helped attract funds; they bought 5.89 million shares of INTC last quarter.
Qualcomm (QCOM) is another big technology name that made fund managers' love list. Funds picked up 759,410 shares of the $127 billion chip stock in the last quarter. In a big sense, institutional investors are doubling down on the mobile chip market with the QCOM buy.
Qualcomm is a wireless chipmaker, producing everything from processors to wireless communications cards. But that's not all. The firm is also a major tech IP licensor. The firm's patents effectively mean that every handset maker in the world has to pay Qualcomm royalties if they want their phones to operate on 3G and 4G networks. That means that Qualcomm basically gets paid for every phone on the market today, even if the firm's chips aren't in it. Even down the road, backward compatibility with legacy networks will keep QCOM's patent portfolio a key asset.
Mobile chips are still the biggest part of QCOM's revenues though; the firm's offerings are critical components in phones such as the Samsung Galaxy line and the iPhone 5. And those chip sales have helped to fund an exemplary balance sheet with more than $31 billion in cash and investments and effectively no debt. That's enough to pay for approximately a quarter of QCOM's current market capitalization right now -- and it greatly reduces the risks of owning this stock.
This is another name that investors could do worse than to follow fund managers into.
To see these stocks in action, check out the Institutional Buys portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.