Top-performing hedge fund manager Theofanis Kolokotrones used his fourth-quarter trades to cut his holdings in chipmaker NVIDIA Corporation (NASDAQ:NVDA) while increasing his holdings in e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) and electric automaker Tesla Inc (NASDAQ:TSLA), according to just-released 13F forms filed with the SEC.
Kolokotrones co-founded Primecap Management in 1983, which now has a portfolio value of over $101 billion. The tech-focused fund has driven the kind of returns that other fund managers can only dream of with a 20.04% annualized return in the last 3 years, rising to close to 28% last year.
Indeed, we can see how the fund, which is ranked #21 out of 202 hedge funds tracked by TipRanks, has outperformed the measured performance of both the average hedge fund and the S&P 500. How does Primecap choose its stocks? The fund invests according to four key principles: fundamental research; long-term investment horizon; individual decision-making; and focus on value. In fact, the fund follows the mantra that “a stock has the potential to be a good investment only if it is purchased at the right price”.
Bearing this in mind let’s take a look at 3 of the funds key Q4 moves:
In Q4, Kolokotrones reduced the fund’s Nvidia holding by 11.04%. Primecap still has a substantial holding in Nvidia worth $2.4 billion. Since the last filing shares have slumped by 4.83%. Why are prices down? The market has been concerned about Nvidia’s outlook ever since the chip giant first posted fourth-quarter earnings. Although Nvidia beat estimates, Nvidia bulls were disappointed that the beat margin was not as wide as they had hoped. NVIDIA earned $0.99 per share on revenue of $2.2 billion while the Street’s estimate came in at $0.83 per share on $2.1 billion revenue.
Shares have just dropped 9% to a three-month low on 23 Feb after 5-star Nomura analyst Romit Shah downgraded the stock to sell. Shah, who dropped his price target $10 to $90, says “We believe consensus is underappreciating a slowdown in gaming” adding that “investors should recognize that the market’s enthusiasm for Nvidia’s emerging businesses [in data centers and automotive] is historically short-lived.” Shares, which more than tripled over the last 12 months, are now trading at $101.46.
Nvidia has a moderate buy analyst consensus rating on TipRanks with 4 sell ratings out of a total of 23 ratings published in the last 3 months. The average analyst price target still represents a 7.88% potential upside of from the current share price.
Kolokotrones increased the fund’s Tesla holding by 14.56% to 1.16 million shares worth $249.6 million. The shares have made an impressive gain of 20.27% since the last filing. The electric carmaker has just released mixed Q4 results with a loss per share of 69 cents vs the expected loss of 43 cents while revenue of $2.28 billion beat the estimated $2.19 billion.
In the quarter, Tesla acquired solar energy services company SolarCity, adding $77 million of cash to its business but also incurring $85 million in related expenses. Tesla plans to begin selling and installing solar roofs later this year, according to its Q4 letter to investors.
Analysts such as Deutsche Bank’s Rod Lache and JPMorgan analyst Ryan Brinkman are now predicting that another capital raise is likely. Brinkman highlights the fact that guidance for a $2.0-$2.5B capital outlay in 1H2017 for the launch of the Model 3 car beats his estimated spending of $2.3 billion for the entire year.
On the other hand, analysts such as Guggenheim’s Rob Cihra were encouraged by the fact that the Model 3 appears to be on track for limited production in July ramping up to volume production in September. Execution risk and uncertainty keeps the analyst consensus rating on TSLA stock a hold, with a price target indicating a potential 3.92% downside.
Kolokotrones also beefed up the fund’s position in e-commerce giant Amazon by 6.32% to 309,000 shares worth $231 million. From the last filing date, the shares have already appreciated in value by 12.72%. The market is currently very strong on Amazon which has an analyst consensus rating of strong buy.
In particular analysts like the way Amazon’s cloud services business AWS is going. “AWS is leading peers in new contracts due to its robust product portfolio. […] AWS has 150 critical products/features compared to Microsoft at 40 and Google at 15. To consistently win new enterprise contracts, the cloud computing provider needs at least 50 critical product sets in contract bids,” says four-star CLSA analyst James Lee.
Recent 10-K disclosures also revealed good news about Amazon’s Prime subscription offering. Piper Jaffray analyst Michael Olson is now predicting “ ~72M paying Prime subscribers [which]enabled ~$250B of gross merchandise value (GMV) in 2016, in line with our previous estimates.”
Out of 30 analysts that have published recommendations on AMZN in the last 3 months, 29 are a buy and only 1 is a hold. The average price target of $940 suggests an upside of 11.3% from the current share price of $845.