Acquisitions – Deal making in the tech industry is back

Acacia Communications

What they do: Acacia transforms communications networks relied upon by cloud infrastructure operators and content and communication service providers by delivering high-speed coherent optical interconnect products.

What the bulls think: Acacia has better exposure to short-range and SDN markets than do long-haul players like Infinera, and its 400G chipset widens its moat against potential rivals. If we consider those factors alongside Acacia’s positive growth forecasts and low valuations, we’ll notice that it might be wiser to buy the stock at current prices. With over 60% of shares being shorted, all it could take is a positive headline or earnings beat to spark a brutal short squeeze.

Caveat: Concern about Acacia is its customer concentration. In fiscal 2016, its five largest customers — which include ADVA and Chinese tech giant ZTE — accounted for 78% of its revenue. Lower orders from any of these customers could shatter Acacia’s top-line growth.

Institutional Activity

54 funds are adding to an existing position vs. 29 funds reducing their position. The overall trend for the number of 13F filers is declining since Q2 2016 indicating a weakening interest from institutional investors. The largest shareholder with 28.3% ownership is represented by Matrix Partners Viii LP.

Lumentum

What they do: A market-leading manufacturer of innovative optical and photonic products enabling optical networking and commercial laser customers worldwide.

Recent Developments: There has been significant speculation that Apple is exploring 3D-sensing technology for the next iPhone and may tap Lumentum as a supplier. Inadvertently stoking that speculation, Lowe said that the company has “made substantial progress on 3D sensing for mobile devices applications” and is “looking to 3D sensing to enable new applications.”

Institutional Activity

57 funds are creating new positions vs. 46 funds closing out their position. The largest buyers are Blackrock (+6.4 million shares), Alliance Bernstein (+1.76 million shares) and Wellington Management (+1.29 million shares).

Cornerstone OnDemand

What they do: Cornerstone OnDemand Inc. is a cloud-based learning and talent management solutions provider headquartered in Santa Monica, California.

Trend: Cornerstone’s revenue for Q1 2016 was $99.3 million, a 34% jump from the same period last year. We see the current trend and price action going forward as neutral which screams for a spread trade.

Setup:

Rules

– Open short put spread 2-days after earnings

– Close short put spread 29 days later

– Use the 30-day options

– Open short put spread 2-days after earnings – Close short put spread 29 days later – Use the 30-day options Results Short Put Spread

– Monthly Options

– Back-test length: three-years

– Open 2-days After Earnings

– Close 29-days Later

– Holding Period: 28-Days per Earnings

– Monthly Options – Back-test length: three-years – Open 2-days After Earnings – Close 29-days Later – Holding Period: 28-Days per Earnings Winning Trades: 10

Losing Trades: 2

Post-Earnings Short Put Spread Return: 127.3%

Annualized Return: 138%

Institutional Activity



30 funds are creating new positions vs. 29 funds closing out their position. The largest buyers are RWC Asset Management (+11 million shares), Silverback Asset Management (+ 9 million shares) and Camden Asset Management (+3.5 million shares). The largest sellers are UBS Asset Management (-16.05 million shares), Credit Suisse (-5.88 million shares / Sold All) and Clearbridge Investments (- 5.4 million shares).

MACOM Technology Solutions

What they do: MACOM Technology Solutions is a developer and producer of radio, microwave, and millimeter wave semiconductor devices and components.

Recent Developments: Adjusted for one-time events, including its January acquisition of AppliedMicro, earnings look good at a positive $0.63 per share — a 37% jump from the same period last year. It should be no surprise that the big growth driver for anyone in this space right now is the switch to cloud computing, and during the earnings call, MACOM CEO John Croteau related this industry switch and its effect on MACOM’s growth potential when he said, “Personally, I haven’t seen such a breakout in our part of the industry since the advent of digital handsets and smartphones decades ago. It’s shaping up, yes, to be that big.”

Institutional Activity

45 funds are creating new positions vs. 21 funds closing out their position. The largest shareholders are Ocampo John L. , Wellington Management Group, Vanguard, Lord Abbett & Company and Jennison Associates LLC.

Cloud Computing Trends: Key Findings ->

“Some of forecasts we’ve seen — for example, Goldman — shows cloud spending from 2016 to 2020 will quadruple,” said Exencial Wealth Advisors senior analyst Rich Erwin, who helps handle $1.6 billion in assets under management. “Last year, overall spending was around $32 billion and maybe $135 billion or so is devoted to the public cloud, which is the real growth vehicle.”

That growth is expected to largely be captured by the largest companies, giving an opportunity to investors to concentrate their bets and generate outsized returns if it comes to fruition.

“I’ve seen numbers that in roughly ten years, Microsoft will have between 25% and 30% of its revenue and operating income from cloud services business,” Erwin added. “It’s a $3 billion business now, but it has the potential to be really big. It’s the biggest trend in technology now and will be for the next decade.”