$6 billion Highbridge Capital Management fund has made some big portfolio shifts in the second quarter. From 13F forms filed with the SEC we can see that Highbridge substantially adjusted three key stocks: Tesla Inc (NASDAQ:TSLA), Apple Inc. (NASDAQ:AAPL), and Micron Technology, Inc. (NASDAQ:MU).
Founded in 1992, Highbridge says its philosophy is to “focus on relative value strategies with idiosyncratic sources of return.” It offers investment solutions across multi-strategy and single strategy hedge funds and daily liquidity products as well as public and private credit funds on the Highbridge Principal Strategies platform. The fund, based in New York and with offices in London and Hong Kong, has 320 employees including 120 investment professionals.
Now let’s dig down into Highbridge’s latest key stock moves:
In Q2 Highbridge displayed a confidence in controversial auto stock Tesla. He increased the fund’s holding in the stock by 253% to $11.1 million. So far since the last filing date the holding is already down by -5.6%. The holding is equivalent to about 0.17% of the total portfolio.
In contrast to Highbridge, CFRA analyst Efraim Levy has just come out with a very bearish analysis of Tesla stock. Levy has a Sell rating on Tesla stock- which he has reiterated multiple times since downgrading Tesla two years ago. He is predicting a tricky road ahead for the brand-new Model 3 sedan. Tesla has ambitious goals to ramp up production of the Model 3 to 40,000 units per month in 2018. Levy says:
“We expect profit acceleration at full Model 3 production, but we also see risk of delays and competitive challenges. Despite steady favorable news flow year-to-date, including a well received debt funding, we note TSLA’s record of missing both target dates and initial consensus forecasts.”
Levy did raise his 12-month target by $20 to $275 due to “expected rapid TSLA growth and all-electric vehicle leadership.” But he also widened the loss per share estimate for this year by $3.80 to $6.25, and “cut ’18’s $2.00 EPS estimate to a loss per share of $0.50.” The analyst has a four-star rating on TipRanks with a 62% success rate and 7.3% average return. However his track record on Tesla stock specifically is more questionable with just a 30% success rate and -15.7% average return.
Overall analysts are cautious about Tesla’s outlook. The stock has a Hold analyst consensus rating with 5 buy, 7 hold, and 5 sell ratings in the last three months. However the average analyst price target of $314 stands at a downside of -11% from the current share price. But it is interesting to note the huge divergence in price targets from $155 on the low to $464 on the high from Berenberg Bank.
Highbridge revealed a very bullish sentiment on one of the world’s largest companies, Apple. He ramped up the fund’s AAPL holding by 5,195% to $19.65 million. And this has proved to be a good decision, with the shares already up about 11.4% since the last filing date. However, the holding still only equates to 0.29% of the total portfolio.
Highbridge isn’t the only one bullish on AAPL- so is Canaccord Genuity analyst Michael Walkley. He reiterated his Apple buy rating on August 23 with a price target of $180- 12% upside from the current share price. Following a new survey into iPhone sales he notes that Apple is benefiting from “steady iPhone sales ahead of September launch [of the iPhone 8].” Previously the market had feared that consumers would delay purchases until the release of the much-hyped iPhone 8 which is generating “strong consumer interest”.
Walkley believes that Apple has a very bright future ahead as iPhones become more, not less, expensive: “Apple will increase market share and grow its share of industry profits given the anticipated higher ASPs [average selling price] for the OLED iPhone and thus higher gross margin dollars.” He concludes: “We believe Apple continues to grow its leading market share of the premium-tier smartphone market with double digit growth of its installed base during the quarter.” Indeed, he predicts that “the iPhone installed base will exceed 635M exiting C2017.”
The good news is that Walkley is a top analyst to track. He has a five-star rating on TipRanks where he is ranked at #35 out of 4,609 analysts. On Apple stock specifically, he demonstrates a 78% success rate and 24.1% average return.
Overall, the Street has a Moderate Buy consensus on Apple according to TipRanks. This breaks down into 25 buy and 9 hold ratings in the last three months. These analysts have an average Apple price target of $170 which works out 6.33% upside from the current share price.
Micron Technology, Inc.
In the second quarter, Highbridge slashed the fund’s holding in fast-growing semiconductor stock Micron by 79%. The fund’s MU holding is now worth just $4.6 million- up 2% from the last filing date. This is equivalent to about 0.07% of the total portfolio.
Perhaps Highbridge is feeling concerned about the stock’s meteoric rise. Over the last year shares have doubled to the current price of $30.45. The stock experienced a sell-off following fiscal third-quarter earnings results, even though the results came in above market expectations. Micron reported revenue of $5.57 billion (up 92% year-over-year) and EPS of $1.62. Going into the print, consensus estimates were just $5.41 billion and $1.52, respectively.
Now the stock is rebounding and analysts believe that MU has room to grow even further- by close to 40% in the next 12 months. This is due to a triple whammy of strong demand for Micron’s DRAM chips, NAND chips, and higher gross margins. DRAM- dynamic random access memory- is about 64% of MU’s revenue. And the best part: DRAM prices are set to stay elevated for the rest of the year. We can tell this from Micron’s very bullish Q4 guidance for revenue of $5.7 billion to $6.1 billion (up 83% at the midpoint), and a recent report by Digitimes.
The report says DRAM contract prices, up 40% from the last quarter, will remain strong through 2017. Digitimes expects holidays to result in higher DRAM demand and that a two-week manufacturing pause at a MU plant in July could further limit already tight supply – again boosting prices.
Overall the stock has a Strong Buy analyst consensus rating. We can see that in the last three months, MU has received 17 buy and 2 hold ratings. Meanwhile the average analyst price target of $42 stands at a huge 37% upside from the current share price.