If there is one key hedge fund to track right now it is the $12.6 billion Balyasny Asset Management fund and its founder Dmitry Balyasny. We extracted data from the latest 13F forms filed with the SEC to reveal the multi-strategy fund’s latest trades. Most notably, the trades reveal that Balyasny- who is actively involved with the firm’s daily trading activity – has a bullish sentiment on three of the market’s most buzzing stocks: Applied Optoelectronics Inc (NASDAQ:AAOI), Advanced Micro Devices, Inc. (NASDAQ:AMD) and Apple Inc. (NASDAQ:AAPL).
Nicknamed, BAM, the Chicago-based fund boasts assets under management of over $12.6 billion. Most of these funds are held in its highly-successful Atlas Global fund. Dmitry Balyasny founded the firm in 2001 and has overseen the fund’s rapid expansion to cover 90 international teams, multiple strategies and multiple funds. He is the man behind the famous ‘BAM model’ which involves risk-taking teams spreading capital across a very diverse range of stocks
Balyasny is confident that, even in tough times, his firm has the ability to correctly predict the best investment opportunities. He says: “We think the challenges, consolidation, and changes in the industry are due to one main factor: There isn’t enough alpha to make everyone happy”. He continues: “A correct, fundamentally variant view is hard to come by, and the alpha is short-lived as others catch on.” But, according to Balyasny, a competitive market has its advantages: “While the business is tough in the short run, it is ultimately good for survivors.”
Will he make sufficient alpha with the following three trades? Let’s take a closer look:
Applied Optoelectronics Inc
In the second quarter, Balyasny initiated coverage in flailing fiber optics maker Applied Optoelectronics. He snapped up 725,000 AAOI shares valued at $44,798,000.
Unfortunately for Balyasny shares in Applied Optoelectronics plunged by 20% last Friday, following the release of disastrous preliminary Q3 results. AAOI revealed that it would be reported revenue of $88-89 million instead of the previously expected $107-$115 million. This disappointing performance is largely due to a shortfall from just one major customer- Amazon. Amazon’s revenue contribution came in at just 10% for the quarter as opposed to 47% in the previous quarter.
For top Needham analyst Alex Henderson the revenue miss “leaves many questions unanswered.” He wonders why AAOI lost Amazon as a customer asking: “Was it competition? Was it timing of builds that stalled? Was it the shift to 100G is going to another vendor and if so why? Has increased competition from Intel altered the landscape? Is this a temporary lull in demand as the customer transitions designs to the new speed products?”
But all is not lost as the analyst decides to reiterate his buy rating on the stock with a $75 price target. While this is still considerably lower than his previous price target of $115, $75 still suggests a meaningful recovery from the current share price of $43.38. He says: “We still think better days are ahead for AAOI.” Even though the company lost share in the Amazon account, it is still seeing increased sales of 100G and has broadened its customer base. Likewise, Raymond James analyst Simon Leopold agrees that “this is not the time to sell” as “top customer Amazon is in a transition, while other customers are growing robustly, and the market for data center optical transceivers remains healthy.”
Overall, analysts have a Moderate Buy rating on AAOI. This breaks down into 7 buy and 2 sell ratings in the last three months. One of these sell ratings comes from BWS Financial analyst Hamed Khorsand. He believes that “AAOI will have a difficult time in recovering lost revenue from AMZN at the 100G level because there are several competitors AMZN already uses for 100G, not just AAOI.” With share prices so low, the average analyst price target of $74.75 now stands at over 70% upside from the current share price.
Advanced Micro Devices, Inc.
Balyasny demonstrated a bullish attitude on booming semiconductor manufacturer AMD in the second quarter. He upped the fund’s AMD holding by over 600% with the addition of 437,900 shares. The company’s total AMD holding now stands at 510,800 shares, valued at $3,675,000.
The market is currently holding its breath as AMD is due to report its quarterly earnings on October 24. Shares slipped recently following the latest 8th generation Core desktop processor release from AMD’s big rival Intel (INTC). “I believe the [market] sentiment is driven primarily by belief that AMD poses less of a threat [to Intel],” Patrick Moorhead, principal analyst at Moor Insights & Strategy, said to CNBC.
However, top Baird analyst Tristan Gerra is actually becoming more bullish on AMD’s prospects. He has just crowned AMD its number 1 medium-term idea. Gerra has a $20 price target on AMD stock- which suggests that the stock could rise by as much as 40% over the coming year. Note that this is a top analyst to track- on TipRanks he is ranked #165 out of a total of 4,697 polled analysts. According to Gerra, graphics processing units growth trends are set to remain strong for the rest of this year. At the same time, the semiconductor sector will continue to benefit in 2018 from current order restrictions which has created a significant backlog of demand.
AMD has a cautiously optimistic Moderate Buy analyst consensus rating according to TipRanks. In the last three months the stock has received 8 buy, 8 hold and 3 sell ratings. Meanwhile its average analyst price target of $14.34 is only marginally above the current share price of $14.26.
Similarly, Balyasny increased the fund’s holding in Apple by 124% (1,079,563 shares). This means that the fund now owns no less than 1,952,433 Apple shares with a value of $281,189,000.
No doubt five-star KeyBanc analyst Andy Hargreaves would approve of the fund’s latest move. Hargreaves himself has made headlines with his decision to upgrade his AAPL stock rating from hold to buy on October 16. His new AAPL stock rating comes with a $187 price target (17% upside potential).
What has convinced Hargraves to shift to the bull camp right now? According to Hargreaves, Apple’s “aggressive market segmentation” strategy is now so promising that it overshadows doubts surrounding weakening iPhone sales. Hargreaves says he still “pessimistic” about the iPhone’s multicycle unit growth but nonetheless: “Apple’s expanded market segmentation strategy seems likely to drive average gross profit per user above our previous expectations.”
Plus Hargreaves points out that Apple has raised the iPhone price, especially with the soon-released iPhone X. This also involves charging more ($150 up from $100) for increased storage possibilities. Apple has also sneakily removed the option to increase storage to 128GB- instead the next data storage upgrade comes in at 256GB. The actual cost for Apple of the increased storage is comparatively very small- at less than $10 per 128GB.
At the same time, Apple is passing on more of the cost of producing the iPhone X to suppliers than Hargreaves previously expected. He says: “Our conversations with suppliers suggest Apple will bear little of the cost associated with current yield issues around the iPhone X, which is in contrast to our previous expectations. This suggests the increase in iPhone X cost relative to the iPhone 8/8+ is likely to be more moderate than we previously estimated.”
Note that Hargreaves has a strong track record when it comes to stock recommendations, boasting a 73% success rate and 26.2% average return. And on APPL stock he performs even better with a 79% success rate and 47% average return as he successfully navigates Apple’s stock price fluctuations.
Overall TipRanks reveals that Apple has the thumbs up from the Street with a Strong Buy analyst consensus rating. These analysts have a $175.69 price target on AAPL, which translates into respectable upside potential of 10% from the current share price. In the last three months, 23 analysts have published buy ratings on Apple while 7 analysts have published hold ratings.