Technology

Hedge Fund Managers Are in Love With 3 Top Semiconductor Stocks

Lee Jackson

Published: July 6, 2018 7:50 am

Last Updated: January 11, 2020 9:25 pm

To say that hedge fund managers tend to follow the herd is an incredible understatement, and it always has been. While publicly they sometimes seem reluctant to discuss their holdings, especially stocks they are short sellers of, the reality is managers tend to talk among themselves as they run in the same circles, and often the discussions are centered around their portfolios and what is in them.

One thing’s for sure, while mutual fund managers are always trying to beat their benchmarks, which for growth funds is typically the S&P 500, hedge fund managers are usually trying to generate outsized gains and super alpha.

A new Merrill Lynch research report explores which semiconductor stocks portfolio managers owned, and we were intrigued by three chip stocks that hedge funds have the highest ownership in. While well known, all three are somewhat off-the-radar and may be solid additions to aggressive growth portfolios.

Cavium

This stock has been a Wall Street favorite for some time. Cavium Inc. (NASDAQ: CAVM) designs, develops and markets semiconductor processors for intelligent and secure networks in the United States and internationally. It offers integrated semiconductor processors for wired and wireless networking, communications, storage, cloud, wireless, security, video and connected home and office applications.

The company’s products also include a suite of embedded security protocols that enable unified threat management, secure connectivity, network perimeter protection and deep packet inspection.

Note that Marvell Technology is buying the company for $40 per share in cash plus 2.1757 Marvell shares for each Cavium share.

The shares have traded in a 52-week range of $56.96 to $92.66. The Wall Street consensus price target for the stock is $85.67. The shares closed right near that level on Thursday at $86.23.

Marvell Technology Group

Last year the company announced a bold $6 billion bid to buy Cavium. Marvell Technology Group Ltd. (NASDAQ: MRVL) is a fabless supplier of mixed-signal and analog semiconductor products to a number of storage, computing and communication applications, including hard disk drives, personal computers, servers, Ethernet switches, printers and connectivity markets.

Top analysts around Wall Street are very positive on the company’s purchase of Cavium, and many feel the deal adds significantly to the growth element for the stock. The addition also helps make Marvell solidly positioned in data center, cloud, enterprise, security and 5G.

The company has cleared the final hurdle to acquire Cavium, as it received the necessary approval from China’s State Administration for Market Regulation. The company expects to complete the merger this month, but the trade issues need to be watched.

Shareholders receive a 1.28% dividend. The consensus price objective is $27.85. The stock closed trading Thursday at $21.28, in a 52-week trading range of $14.87 to $25.18.

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Mellanox Technologies

This small cap company has been on fire this year. Mellanox Technologies Ltd. (NASDAQ: MLNX) is a fabless semiconductor company. It is an integrated supplier of interconnect products and solutions based on the InfiniBand and Ethernet standards.

Mellanox operates in the development, manufacturing, marketing and sales of interconnect products segment. Its products facilitate data transmission between servers, storage systems, communications infrastructure equipment and other embedded systems. It operates its business globally and offers products to customers at various levels of integration.

Top Wall Street analysts are estimating 2018 earnings-per-share growth of an outstanding 41.8%.

The 52-week trading range for the stock is $42.10 to $90.45, and the consensus target price is $105.10. The shares closed Thursday at $85.90.

Three red-hot chip stocks that the top hedge funds are loaded up on. It should be noted that, based on the exchange price for Cavium, the stock is fully valued, and portfolio managers with gains are probably waiting for the deal to close.