Even amid the possibility that the industry cycle for personal computers could start to weaken from its exceptionally strong 2021, Fidelity’s Caroline Tall says she sees companies in the hardware industry with multiple long-term business drivers.
“I continue to find opportunities among firms that either trade at compelling valuations or could overshoot long-term growth expectations,” says Tall, portfolio manager of Fidelity® Select Tech Hardware Portfolio (FDCPX), the newly repositioned successor to Fidelity® Select Computers Portfolio, which Tall managed since 2017.
The fund repositioning, effective November 13, is intended to provide Tall broader investment opportunities that are in line with changes in the computers industry due to advancements in technology and shifts in consumer habits.
Tall notes that hardware supply shortages have persisted as firms race to get production back up to full throttle. Along with brisk customer demand, she sees tight supply supporting prices for both computer components and hardware end-products.
Where the industry heads at the start of a new year and beyond isn’t entirely clear, Tall acknowledges. “It’s not obvious that the strong consumer demand seen in 2021 will continue at the same pace in roughly the next 18 months, or whether it will start to ebb once the product shortages begin to ease,” she says.
Yet this hasn’t deterred her from seeking new opportunities in the industry. In September, Tall meaningfully expanded her overweight in Dell Technologies (DELL), which she considers a dominant player in PCs, servers, and storage, and is the majority shareholder in cloud-computing company VMware. She thinks Dell’s stock price at the end of the third quarter failed to reflect the company’s improved capital structure, the planned spin-off of Dell’s 81% stake in VMware, and the potential for a dividend.
“I saw Dell as a bargain, partly because its management team appeared to be on a mission to unlock value for shareholders,” Tall says, adding that Dell is the fund’s No.4 holding as of September 30.
Similarly, she grew an outsized position in fast-growing, all-flash-based storage hardware and software company Pure Storage (PSTG), which helps companies meet their data-storage needs without having a lot of on-premise hardware. Over time, she thinks Pure Storage could take market share from more-established competitors, such as Network Appliance, while garnering healthy subscription revenue.
Based on her interest in consumer electronics, Tall recently boosted the fund’s stake in audio products company Sonos (SONO), buying on share weakness related to a lawsuit from Google parent Alphabet and related analyst downgrades. With its now-lower financial expectations, Sonos could find it easier to meet or exceed revenue estimates in the coming months, according to Tall.
“Even though we’re not at the start of an industry cycle, there are still many great businesses to own in computer hardware,” Tall says. “Innovation is flourishing in the industry, and I am confident I can find stocks with the potential to outperform in an ever-changing environment.”
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