Throughout the first quarter, many gurus invested some of their capital in technology stocks, suggesting that the IT sector presents good investment opportunities in the upcoming months. Two of these stocks, Infosys Ltd. (INFY, Financial) and NetScout Systems Inc. (NTCT, Financial), have been bought and held by five gurus in the past three months, according to the Consensus Picks of Gurus screener.
Among the gurus who increased their positions in the two stocks, Alan Fournier (Trades, Portfolio) of Pennant Capital impacted his portfolio the greatest with his NetScout Systems transaction. Fournier added 159.39% to his NetScout Systems position, increasing his overall portfolio by 1.26%. Likewise, Sarah Ketterer (Trades, Portfolio) of Causeway Capital Management LLC increased her Infosys position by 117.34%, resulting in a 0.73% portfolio increase. Ken Fisher (Trades, Portfolio) of Fisher Asset Management slightly increased his positions in both stocks while David Dreman (Trades, Portfolio) of Dreman Value Management bought both stocks in the past three months.
My Gurus feature allows personalized guru updates
One major feature of the GuruFocus website is the ability to track a personalized list of gurus. Under the “My Gurus” tab, users can view their custom guru lists as well as create their own. To create a personalized list of gurus, simply click on “Personalize.” In the popup dialog box, users can choose which gurus to track by clicking their names and clicking the orange “>>” button to transfer them to their “personalized list.” To remove the gurus from consideration, click the guru’s name in the right column and then press the “<<” button. In the screen shot below, the right column lists the gurus who increased their positions in the two technology stocks listed above. For reference, these gurus are known as the “IT Gurus.”
The List of Gurus tab allows users to view their customized list of gurus as well as the premium list and the premium-plus list of gurus. Users can get an overview of their gurus’ portfolios using the Guru Portfolio Overview tab. Users can also see the top 10 holdings of each of their gurus as well as holdings by sector and any international holdings.
One of the most important features under the “My Gurus” tab is the Aggregated Portfolio, which takes all of the gurus’ portfolios and lists the 50 companies with the highest combined weightings from all gurus. Additionally, users can limit the companies to a specific company, market cap range or sector. For example, the aggregate portfolio below shows the top 10 technology stock holdings of the “IT Gurus.” This list shows that the “IT Gurus” have their highest combined weightings in Microsoft Corp. (MSFT, Financial) and Qualcomm Inc. (QCOM, Financial).
Greenblatt searches for winning technology stocks 'magically'
One of the “IT Gurus” who recently bought NetScout Systems, Joel Greenblatt (Trades, Portfolio) of Gotham Asset Management LLC, finds cheap and valuable companies through a “magic formula,” according to his GuruFocus profile. Greenblatt targets companies that have high returns on capital and earnings yield, two indicators that the company has “value with a catalyst.” According to the magic formula screener, Syntel Inc. (SYNT, Financial) and F5 Networks Inc. (FFIV, Financial) are the top two 5-star technology stocks based on Greenblatt’s magic formula.
The majority of Greenblatt’s top stocks share similar financials: In addition to having high earnings yield and high returns on capital, the stocks on the magic formula screener also have higher 10-year EBITDA growth compared to their P/Es. As stated in an earlier article, Warren Buffett (Trades, Portfolio) targets stocks with low P/E ratios compared to their five-year EBITDA growth. Syntel, with a P/E ratio of 14.69 and a five-year EBITDA growth of 18.50%, is undervalued based on Buffett’s strategy. On the other hand, F5 is only fair valued since it has a P/E ratio of 23.72 and a five-year EBITDA growth of 19.6%.
Both Syntel and F5 have very high profitability and growth; the companies have consistent per share revenue growth and their operating margins are expanding year over year. Currently, Syntel’s operating margin of 30.36% is higher than 95% of global IT services stocks. With an operating margin of 27.25%, F5 has a higher operating margin than 93% of companies in its sector. Although F5’s operating margins are less volatile, Syntel had higher operating margins than F5 did in the past three years.
Syntel currently has a Greenblatt return on capital of 146.12%, higher than 81% of stocks in its sector. Although the Michigan-based company had slightly volatile returns on capital in the early years, its ROC has remained constant since 2005. On the other hand, F5’s ROC increased from -284.62% in 1999 to its peak in 2012, a very high 853.66% ROC. Since the third quarter of 2005, F5’s return on capital has been consistently greater than Syntel’s return on capital.
Despite having very high returns on capital, F5 Networks had lower earnings yields than Syntel did during the past 10 years. Both Syntel and F5 had nearly constant earnings yields in the past 10 years although Syntel had a major peak in 2009.
Among its competitors, Syntel has the highest return on assets, 10-year revenue growth and 10-year earnings growth. Despite having the highest return on assets among its competitors, F5 only has the second-highest return on equity, 10-year revenue growth and 10-year earnings growth. Overall, both Syntel and F5 have very high profitability and growth compared to competing firms in the technology sector.
In addition to increasing their positions in Infosys and NetScout, some “IT Gurus” have also added to their positions in Syntel and F5. Jeremy Grantham, Jim Simons and Fisher slightly increased their F5 position in the previous quarter. Additionally, Simons increased his Syntel position by about 24%.
See also
For more technology stocks, users can utilize the All-in-One Screener, an all-inclusive screener that allows users to choose which filters to apply. Additionally, users can view the latest guru picks, insider trades and other various screens.
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