Fund Fight: Hedgies Vs. Mutuals
The near 4% jump in the Nasdaq on Friday is just the beginning of what looks like an extended tech rally, Cramer told viewers today. No doubt the fundamentals are there to warrant such a move, but the sector is seeing a lot of money change hands. This flood of fund cash will be the biggest driver going forward.
Mutual funds always jump at tech stocks at the slightest sign of an improving economy. They also like to show their investors how smart they are by holding positions in each quarter’s biggest winners. Those two trends are converging right now, and that’s pushing up the Nasdaq.
But hedge funds are part of this game, too. They’ve been shorting tech all along, but are reevaluating that strategy as the economy starts to turn and the mutuals buy in. The hedgies have no choice but to follow along so they don’t miss the move. As a result, all of the sector’s biggest names – Apple , Google , Research in Motion – will go higher.
There are fundamental reasons to like the sector, though. The tech companies themselves where so bearish on their industry that they let inventories run low. They didn’t expect the demand that’s popped up, so now they’re scrambling to get their wares to market as soon as possible. This is benefiting all levels of the business, from semiconductor companies to gadget makers to the retailers. The increased guidance and better-than-expected numbers that have followed forced Wall Street to take notice.
The weak dollar benefits tech as well. Hewlett-Packard and Intel do a significant amount of their business overseas. And as Cramer has said all week on Mad Money, international revenues translate into at-home profits when the dollar is cheap. So aside of the fact that both HPQ and INTC are at historic lows, making them attractive buys, there’s also this increase in earnings.
Strictly speaking, though, Cramer likes Qualcomm for its solid fundamentals, more so than any other stock right now. The company’s product portfolio is the best, he said, and a new upcoming product cycle – 4G wireless – will boost business.
In the end, Cramer still thinks that hedge funds and their reaction to mutual-fund buying will push the Nasdaq higher. He listed the following names as these funds’ most likely buys, based on their performance this quarter: Corning up 49%, Marvell Tech up 45%, Apple up 29%, BMC Software up 26%, NVIDIA up 31%, IBM up 17%, Broadcom up 23%, Google up 15%, Yahoo! up 9%, and EMC up 15%.
Cramer's charitable trust owns Hewlett-Packard and Qualcomm.
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