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Microsoft attracting major hedge funds - report

Tuesday, August 31, 2010
Opalesque Industry Update - Technology and software giant Microsoft Corp., has attracted the attention of major hedge fund managers in the second quarter. TPG-Axon Capital Management’s Dinakar Singh and Greenlight Capital’s David Einhorn, both raised their Microsoft shares, to take advantage of record low price-to-earning multiples, reported Reuters.

Microsoft shares fell 20% from May to June, but market analysts predict a major rebound in the last quarter of this year. Whitney Tilson, Managing Partner of T2 Partners LLC and the Tilson Mutual Funds, who also bought Microsoft shares in the second quarter, told Reuters that the software firm’s stocks are currently trading “insanely cheap for a company of this caliber and market position.”

Other hedge funds which saw an undervalued opportunity in Microsoft’s Windows 7 operating system and Office franchise, are John Griffin's Blue Ridge and Thomas Claugus's GMT Capital, the report said.

Patrick Becker Jr., at Becker Capital Management explained that although Microsoft is a lot more profitable than its rival Apple Inc., the latter it is rewarded with a higher multiple by investors excited by a stream of innovative products like the iPhone and iPad. Microsoft’s value is overlooked in comparison.

Early this month, Einhorn reported a major move into the technology sector when he doubled his stake in Microsoft to 66 million shares up from 3.4 million shares as of March 31, and in Xerox by more than 90%, from 6.5 million to 13.5 million shares. In his quarterly regulatory filing with the Securities and Exchange Commission, Einhorn added he also bought 312,500 shares in Apple Inc, according to another Reuters report.

Each of Einhorn's Greenlight Capital funds posted returns of 1.6%, 2.2% and 0.8%, respectively during the second quarter of this year, according to the firm’s quarterly letter to investors. By comparison, the benchmark Standard & Poor's 500 and Dow Jones industrials average each lost at least 6% in the period (see this month’s Opalesque Exclusive here).

Hedge funds also stocking up in steel broadcast towers
Hedge funds have also been seeking out surer ways to profit from the growing popularity of mobile web-surfing. According to Reuters yesterday, investors are hugely attracted to the low-risk, high-growth prospects of the steel broadcast towers operated by American Tower Corp, Crown Castle International and SBA Communications.

As a result, several of the largest equity-oriented hedge funds, including Andreas Halvorsen's Viking Global Investors, Julian Robertson's Tiger Global Management, Steve Mandel's Lone Pine Capital and Domenic Ferrante of Brookside Capital Investors, boosted their positions in one or more of the stocks in the second quarter, according to a Thomson Reuters survey of regulatory filings.

Microsoft to spend close to $1bn in marketing blitz for Windows Phone 7
In a bid to catch up against rivals Apple and Google, Microsoft has announced plans to spend at least $400m to market its Windows Phone 7 operating system, during the upcoming holiday season.

But a telecom analyst for Deutsche Bank Jonathan Goldberg predicted that Microsoft may end up spending $1bn to make and release the operating system as the firm continues to lose ground in the increasingly crowded smart-phone market by Apple's iPhone, Research in Motion's BlackBerry and Google's Android, which is the most popular smart-phone operating system in the U.S.
- Precy Dumlao

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