Dmitry Balyasny is the managing partner at the billion-dollar hedge fund Balyasny Asset Management. This large and diversified firm manages around $12.6 billion in hedge-fund assets and is closely tracked by investors around the world. In Q4 we can now see that Balyasny revealed a bullish sentiment towards two big semiconductor stocks: Advanced Micro Devices, Inc. (NASDAQ:AMD) and Micron Technology, Inc. (NASDAQ:MU).
Presumably, Balyasny is hoping that these latest trades will help the fund down lock down alpha in an elusive market. According to Business Insider, Balyasny recently told investors: “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 attributed this change to the increase in passive investing, quant funds and a surge in hedge-fund assets that all combine to make the market more efficient and more crowded.
For Balyasny the solution comes by combining the best of quant investing and fundamental investing. This protects against an over-reliance on data which can lead to disaster if the business is there is no variant fundamental view. At the same time, the combination of diversified strategies means that Balyasny has managed to maintain very little correlation between the fund’s strategies and the market in general. As a result, the fund has managed to post consistent returns with its Atlas Global and Atlas Enhanced funds, even missing the market crash in 2015.
“Investors are becoming more sophisticated at separating truly uncorrelated alpha from beta (or what looks like alpha on a daily basis but quickly becomes too correlated in any significant market turbulence)” explains Balyasny.
So with all this in mind let’s now take a closer look at these 2 key trades from the last quarter:
Advanced Micro Devices, Inc.
In Q4, Balyasny initiated a new position in volatile semiconductor stock AMD. He snapped up 1,054,292 shares with a value of $10.8 million.
AMD shares are currently trading at just $11.82 down from $13.74 at the end of January. If you follow Balyasny’s way of thinking, this pullback marks a buying opportunity for AMD bulls.
The company is experiencing new product momentum and is also anticipating market share gains in both the PC and server market. Indeed, the company has just revealed better-than-expected earnings guidance for Q1 with predicted sales of $1.5 billion to $1.6 billion. This comes in way ahead of the Street’s expected figure of $1.25 billion. Already 2017 revenue is up 25% – and now analysts are forecasting a further leap of 18% this year. If we turn to EPS, analysts are looking for 39 cents per share in fiscal 2018- over double 2017’s 17 cents. At the same time, the company is working hard to reduce debt. In the last quarter, AMD revealed that long-term debt is already down by 7.7% year-over-year to $1.35 billion.
On the whole, the Street has a relatively optimistic take on AMD- with a Moderate Buy analyst consensus rating. This breaks down into 7 buy, 4 hold ratings and 3 sell ratings all in the last three months. Meanwhile, the average analyst price target of $15.41 indicates considerable upside potential of over 30%. This reflects the fact that AMD is still trailing peers in terms of valuation.
AMD trades at 2.1 times its trailing twelve months of sales, whereas NVDA stock trades at 14.5 times trailing sales, and Intel trades at 3.3 times sales. And when we consider that AMD stock trades at 22 times 2019 estimates, the picture looks even more appealing.
One bullish analyst is top Robert W. Baird analyst Tristan Gerra. He reiterated his buy rating on AMD on Feb 12 with a $20 price target (69% upside potential). (To watch Gerra’s track record, click here)
Gerra is confident that AMD can benefit from larger rival Intel’s Meltdown misfortune. This refers to a hardware vulnerability that allows a rogue process to read all memory, even when it is not authorized to do so. Intel currently faces 30 customer class-action lawsuits and two securities class-action lawsuits related to these recently disclosed CPU vulnerabilities. And as a result, Gerra says:
“There is emerging ODM feedback that the Meltdown vulnerability could help AMD gain market share in the high-end enterprise PC market, as Intel’s patches negatively impact performance, notably for certain high workload tasks.”
Micron Technology, Inc.
Balyasny also made a bullish move on another semiconductor stock: Micron Technology. He ramped up his position by a significant 545% with the purchase of 968,418 shares. Now Balyasny’s total MU position (of 1,146,302 shares) is worth over $47 million.
According to market commentators, Micron is now gearing up to move considerably higher. Indeed, the company has just announced updated and very encouraging Q2 guidance. Micron is now expecting $7.2 billion in sales and around $2.72 in earnings. This is up from the guidance in December of $7 billion and $2.58 in EPS. Based on these figures, MU is now looking very cheap. For example, on a full year basis, MU is now trading at just 5x forward earnings (or about 15x Q2 earnings).
These numbers are reflected in MU’s increasingly bullish Street outlook. On TipRanks, MU scores a Strong Buy analyst consensus rating. In the last three months, this stock has received 17 buy ratings vs just 2 hold ratings. These analysts have an average price target on MU of $59.25 (34% upside potential from the current share price).
For example, top Needham analyst Rajvindra Gill has just upgraded MU with a confident $76 price target. This indicates huge upside potential of over 70%. (To watch Gill’s track record, click here)
He says NAND concerns are overblown and says: “We believe the market is incorrectly applying a trough multiple on peak earnings. Over time, in our view, this disconnect will close and we should see a re-rating in the multiple.”