Salesforce.com Inc.’s (CRM) stock had a strong finish to 2019, and it has continued into 2020. The shares have steadily outperformed the S&P 500 over the past two months, rising by approximately 28% in comparison to the S&P 500’s gain of about 10%.

Hedge funds were actively buying the stock in the third quarter ahead of the company’s strong performance, which also resulted in the equity being added to the WhaleWisdom Heatmap, ahead of the company’s better than expected fiscal third quarter results and analysts boosting their outlooks.

Strong Results

Salesforce’s third quarter subscription and support revenue were up 34% to $4.24 billion, with professional services revenue up 22% to $274 million. Fiscal third quarter earnings of $0.75 beat forecasts by $0.09, while revenue of $4.5 billion beat estimates by $60 million. For the fiscal year 2020, the company maintained its revenue guidance of $16.9 billion to $17 billion and increased its earnings guidance to a range of $2.89 to $2.90 per share.

Hedge Funds Are Active

Hedge funds were buying the shares in the third quarter, helping it to land on the WhaleWisdom Heatmap with a ranking of 21.  During the quarter, the aggregate 13F shares held by hedge funds increased to 65.9 million from 41.5 million, an increase of almost 59%. While not quite as eye-popping as the hedge fund increase, overall institutions increased their aggregate holdings by nearly 10%, to 708.4 million from 646.5 million. Overall, 46 hedge funds created new positions, 69 added to an existing holding, 15 sold out, and 37 reduced their shares.

Analysts Provide Positive Outlooks

RBC Capital Markets upgraded Salesforce to a Top Pick from Outperform and raised its price target to $215 from $200. Cowen, Inc. views Salesforce as having a highly attractive valuation, with the company’s software creating a strong position in the technology sector. Cowen maintains an Outperform rating and a $195 price target. Additionally, Jeffries Group LLC raised its price target on the stock from $195 to $210.

Currently, analysts’ consensus estimates forecast Salesforce to grow earnings by 25.7% and revenue to rise by 19.4% from 2021 to 2022.  It means that Salesforce’s stock isn’t cheap, trading with a one-year forward PE ratio of 59. But when adjusting for growth, it may prove to be a bit rich for some investors. However, should the company continue to deliver strong results, there is potential for the stock to go on to rise and for shareholders to be rewarded.

Taiwan Semiconductor Manufacturing Co. Ltd.’s (TSM) stock has outperformed the S&P 500 by a wide margin over the past year  Taiwan Semi has risen by approximately 63% during this period, an impressive gain when compared to the S&P 500’s increase of around 27%.

Taiwan Semi’s fourth quarter net profit beat estimates at $3.9 billion, with a healthy outlook, driven by the strong consumer demand for high-end smartphones and the fifth generation of wireless technology known as 5G ramping up.  For the quarter ending in March 2020, revenue is forecast to reach approximately $10.2 Billion, up from the prior year’s 7.1 Billion.

Placement into the WhaleWisdom 100

Given Taiwan Semi’s impressive performance, it’s no surprise that investors started buying the stock in the third quarter.  This resulted in the equity being added to the WhaleWisdom WhaleIndex 100 index in the middle of November and is a sign that investors recognize the opportunities that Taiwan Semi presents.

Hedge Funds Acquire More

At the end of the third quarter, 77 hedge funds held the stock, with 11 holding the shares among their top ten.  The number of 13F shares rose as 15 hedge funds created new positions and eight funds reduced their holdings. Meanwhile, 30 funds added to their positions while 26 reduced them.  Overall, the aggregate 13F shares held by hedge funds increased by approximately 6.5% to 159 million shares from 149 million shares in the prior quarter.

Earnings and Revenue Growth Continue

One reason why investors may be looking to get involved in Taiwan Semi is an upward trend in revenue and earnings growth. Currently, analysts’ estimate earnings growth of 20.3% in 2020 to $2.87 per share and revenue growth of 20% to $42.9 billion.

Despite strong earnings and revenue growth, the stock isn’t cheap on a historical basis, trading for roughly 18.5 times one-year forward earnings estimates, its highest valuation since 2016.  Over that time, the stock has historically traded in a range of 9 to 15. However, if the earnings and revenue growth persist, when adjusting that earnings multiple for growth, the shares appear to be a bargain, trading with a growth adjusted PEG ratio of less than 1 and making shares cheap. However, it also means that for the stock to maintain that upward momentum, the company will need to continue to deliver impressive growth, perhaps even at an accelerating pace to keep the stock price moving higher in the future.

The shares of Crowd Strike Holdings, Inc. (CRWD) have plunged by more than 42% from the highs that followed their initial public offering [IPO] in June. However, the steep decline in the stock has caught the attention of the investing firm Point72 Asset Management, L.P., which is run by Steven A. Cohen, the famous hedge fund manager.  According to an SEC filing on January 8, Point72 substantiality increased its stake in the equity, bringing its total ownership to over 5%.

Crowd Strike saw its stock surge following its IPO in June, finally peaking in August as valuations in the software and cybersecurity sector came into question. Shares came under more pressure in September, despite delivering better than expected earnings and forward guidance. However, the results were not good enough, and that sent the stock sharply lower. The final blow came to the company when its name popped up on a conference call between President Trump, and President Zelensky of Ukraine, in the lead up to President Trump’s impeachment investigation.

13G Filing

Still, a recent 13G filing on January 7 showed that Point72 increased its position in Crowd Strike to approximately 2.17 million shares from just 117,146 shares at the end of the third quarter of 2019. It gives the investment firm control of a 5.3% stake in Crowd Strike.

(WhaleWisdom)

Block Trade

It seems that Point72 may have picked up their stake in the equity following a block trade conducted by Credit Suisse on January 6. The trade was for a 5 million share block of stock from an unknown shareholder. The block trade transaction would have made it very easy for a firm such as Point72 to establish a large position in the equity.

Slowing Growth Rates

Analysts’ consensus estimates forecast revenue growth for Crowd Strike to be very fast in 2020, rising by almost 87% in to $466.9 million. However, that rate of growth is estimated to slow dramatically in 2021 and rise by 46% to $680.6 million. It will then slow again by 2022 and increase by approximately 30% to $884.6 million.

However, the big problem for Crowd Strike will continue to be its valuation, with a market value of $11.7 billion. It leaves the stock trading with a one-year forward price to sales ratio at a very high 14.5 times estimates. Meanwhile, with the company is not expected to earn a profit until 2022, and with earnings of $0.07, the stock’s earnings multiple is even more extreme at 787.

Whether Point72 took a stake in Crowd Strike as a long-term holding investment for the company’s long-term growth potential, or a trade, is yet to be seen. It is something worth keeping an eye on in future filings.

The shares of Activision Blizzard Inc (ATVI) and Electronic Arts Inc. (EA) have struggled since peaking in the late summer of 2018. Both of these stocks have seen their prices drop by around 30% since that time.  But now, some hedge funds are making big bets that both of these stocks rebound from these depressed levels.

Both stocks made it to the WhaleWisdom Heatmap for the third quarter of 2019. Additionally, they both made it to the WhaleWisdom Whale 100 Index due to the bullish activity among investors during the third quarter.  It could merely be a bet on the individual companies, or it could be a bet that the video gaming sector is ready to make a comeback in 2020.

Moving Up on the Heatmap

Activision Blizzard landed at eight on the WhaleWisdom Heatmap, which was up sharply from its ranking of 88 in the second quarter. Of the 150 hedge funds tracked for the heat map, 20 of them held the stock in their portfolio. Overall, 3 of the 20 funds held the shares among their 10 top holdings. Meanwhile, during the quarter, 13 funds increased their position in the stock while 5 reduced their position.

Moving Down

In contrast to Activision Blizzard, Electronic Arts saw its ranking in the Heatmap fall to 84 from its previous rank of 13. Overall, 17 funds held the stock, with three funds holding the stock among their top 10 positions.  In total, 13 funds were increasing their position in the stock while 5 reduced their positions.

Industry Selling Overall

However, while some of the best hedge funds were adding to their shares of both stocks, the broader industry was selling their shares in them. During the third quarter, the aggregate number of 13F shares held of Activision sank by 3.6% to 68.1 million, while falling by 11.4% to 34.0 million for Electronic Arts.

Strong Growth

One reason why investors’ may be moving into these two stocks heading into 2020, is the prospect for growth. Revenue for Activision is estimated to have declined in 2019 by 12.3%, but that trend is seen reversing in 2020. Analysts currently forecast Activision to see revenue growth of almost 9% in 2020 to $6.9 billion. Additionally, earnings are expected to rise in 2020 by nearly 12%.

Electronic Arts’ growth is not expected to be strong, with the company already in the third quarter of fiscal 2020. Revenue in fiscal 2020 is expected to rise by 4.7% to $5.2 billion, followed by growth of 3% in fiscal 2021. Meanwhile, earnings growth in fiscal 2021 is forecast to rise by around 5% to $4.91

Both stocks trade for a similar one-year forward PE ratio, with Activision at 20.5 and Electronic Arts at 21.9. However, Activision’s faster growth rate, and lower PE multiple may make it the more compelling option, currently.

Verizon Communications Inc.’s (VZ) stock has underperformed the S&P 500 by a wide margin in 2019, rising by roughly 9% compared to the S&P 500’s gain of around 29%. Despite the inadequate performance, hedge funds have been actively adding shares of Verizon to their portfolios, and that has resulted in the stock landing on the WhaleWisdom Heatmap.

The heatmap tracks the top 150 hedge funds as measured by the WhaleScore calculation. The stock moved up during the third quarter to 38 from 119 on the heatmap. It would seem that investors are turning their attention to the opportunities Verizon will have on the launch of the fifth generation of wireless technology, 5G.

Hedge Funds Buying Shares

At the end of the third quarter, 21 of the hedge funds tracked for the heatmap owned Verizon. Ten hedge funds added to their positions and eight funds reduced their holdings. It wasn’t only these select funds adding to Verizon in the quarter, because overall the aggregate shares held in Verizon increased by 19.6% to 86.1 million shares among all hedge funds. There were 14 funds that created new positions and 18 that liquidated their holdings. Meanwhile, 57 funds added to their position, while 60 reduced them.

Valuation Seems Reasonable

What may be most surprising is that analysts are not looking for significant growth out of Verizon in 2020. Revenue is expected to rise by 1.5% to $133.6 billion, while earnings are forecast to rise by around 2.5% to $4.94 per share. That growth rate isn’t projected to accelerate either in 2021, with revenue climbing by 1.4% to $135.4 billion, as earnings rise by 3.5% to $5.11 per share.

The stock does trade with a reasonable P/E ratio at 12.5 times one-year forward earnings estimates. When looking at the valuation of the stock on a historical basis, the shares seem reasonably inexpensive. The stock has traded with a P/E ratio in the range of 9.9 to 14 going back to the beginning of 2016. It would suggest that the equity can continue to see multiple expansion in 2020.

It is yet to be seen just how powerful the 5G wireless cycle will be, and just how much revenue it can generate for the wireless providers. But there is plenty of hope among investors that this will be a revolutionary enough launch to get subscribers to upgrade their wireless plans, much like the evolution from 3G to 4G helped to double Verizon’s stock from 2010 through 2013.