This $12 Billion Hedge Fund Bought Cisco, Microsoft, and Xerox

Do you want to buy these growing dividends, too?

Jun 6, 2014 at 8:23AM

The latest 13F season is here, when many money managers issue required reports on their holdings. It can be worthwhile to pay attention, as you might get an investment idea or two by seeing what some major investors have been buying and selling.

For example, consider Bridgewater Associates, one of the world's largest hedge fund companies. According to its recently released 13F statement, the company has increased or initiated positions in Cisco Systems, (NASDAQ:CSCO), Microsoft Corporation, (NASDAQ:MSFT), and Xerox Corp (NYSE:XRX).

Cisco Systems's stock has averaged 16% annual gains over the past 20 years, but only 6% over the past five. Once a rapid grower, the company has experienced shrinking gross margins and lumpy earnings in recent years. Cisco's networking equipment business has been challenged by software-defined networking (SDN), and the company is investing heavily in cloud-computing and the "Internet of things," though it faces serious competition there. Its last quarter was mixed, with revenue and earnings topping expectations but both still declining year over year and emerging-markets revenue declining. Cisco's stock yields 3.1%, and it has been upping that payout aggressively. Shareholders can also benefit via stock buybacks: The company has spent some $2 billion on them and is ready to spend $10 billion more. It seems undervalued, too, with its forward P/E near 11.

Microsoft Corporation may have lost some of its momentum and dominance, but it's not standing still. It posted solid third-quarter results in April, with new CEO Satya Nadella noting the company's focus: "This quarter's results demonstrate the strength of our business, as well as the opportunities we see in a mobile-first, cloud-first world." Microsoft is forging strategic partnerships with industry leaders, SAP, and others as it aims to boost its cloud and marketing efforts. It's also looking to offer smartwatches and is taking on the mobile market with its new Surface Pro 3, which is a bit of a tablet-laptop crossover. There's even talk of making its operating system a subscription product, which would long-lasting revenue streams and address the problem of satisfied customers waiting to upgrade to newer versions. Another winning move is letting Xbox 360 users access entertainment apps without purchasing Xbox Live Gold subscriptions. Microsoft stock yields 2.8%, and it has been growing its dividend by an annual average of 16% over the past five years. Still, bears worry about strong competition, the weak PC market, and shrinking profit margins.

Xerox Corp, like Microsoft, is also transforming its business model, moving from a hardware focus to higher-margin services as it sheds some non-core assets. Obamacare has delivered business for Xerox, and it has been inking long-term contracts, such as processing all of California's Medicaid claims and, more recently, New York's Medicaid management (in a five-year deal worth about $500 million). On the other hand, Xerox was recently dropped as the operator of Nevada's troubled health exchange. The recent purchase of ISG Holdings for $225 million will boost Xerox's workers' compensation operations. Xerox bears may not like a first-quarter drop in revenue and profit over year-ago levels or management's lowering of near-term projections, but bulls love its hefty free cash flow (topping $2 billion annually) and see lots of growth and promise in the company. With a forward P/E near 10 and a 2% dividend, the stock is appealingly priced.

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Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, owns shares of Microsoft. The Motley Fool recommends Cisco Systems and The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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