Trending Stocks: Chesapeake, Northstar Realty, Twitter, Reynolds American, and More

Although there are no major economic releases today, the major indexes have nevertheless opened in the red due to General Electric Company (NYSE:GE) stating that the economy is sluggish alongside its disappointing guidance revisions this morning.

In this article, we’ll examine why Chesapeake Energy Corporation (NYSE:CHK), Northstar Realty Finance Corp (NYSE:NRF), Twitter Inc (NYSE:TWTR), Reynolds American, Inc. (NYSE:RAI), and British American Tobacco PLC (ADR) (NYSEMKT:BTI) are trending and check out the smart money sentiment to see what hedge funds think of each stock.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details).

Chesapeake Energy Corporation (NYSE:CHK) is in the red, though it briefly breached the $7 per share mark this morning after Doug Leggate of Bank of America upgraded the stock to ‘Neutral’ from ‘Underperform’ and hiked his price target on it to $10 per share from $6. Leggate thinks Chesapeake’s analyst day conducted yesterday addressed several investor issues and that its move to develop Oswego and Powder River could help accelerate its oil production growth over the next half-decade. Todd J. Kantor‘s Encompass Capital Advisors established a new stake of 5.22 million shares of Chesapeake Energy Corporation (NYSE:CHK) in the second quarter.

Although its shares are down by 2% this morning, Northstar Realty Finance Corp (NYSE:NRF) received some analyst love from FBR’s Jessica Levi-Ribner today, who upgraded the stock to ‘Outperform’ from ‘Market Perform’ and raised her price target on it to $16 per share from $12.75. While some investors oppose the deal, Levi-Ribner thinks that Northstar’s merger with Colony Capital Inc (NYSE:CLNY) is “all but done.” If the deal happens, Northstar’s management could unlock substantial synergies. Of the 749 hedge funds that we track which filed 13Fs for the June quarter, 32 funds owned $242.79 million worth of Northstar Realty Finance Corp (NYSE:NRF) shares at the end of June, down from 38 funds with shares valued at $343.21 million on March 31.

On the next page we’ll examine why Twitter, Reynolds American, and British American Tobacco are turning heads today.

Twitter Inc (NYSE:TWTR) is in the spotlight after Reuters reported that the company may need to cut costs substantially if it fails to find an acquirer; and seeing as how many prominent companies have shown a lack of interest in acquiring Twitter, it doesn’t look likely that it will be sold any time soon. In terms of how much Twitter can cut, analyst Robert Peck of SunTrust estimates that the company could potentially cut 10% of its workforce and save around $100 million annually. If Twitter’s management doesn’t cut costs, the company could be a potential target for activists. The number of funds in our system with holdings in Twitter Inc (NYSE:TWTR) rose by three during the second quarter to 30 at the end of June.

Two tobacco companies are trending after British American Tobacco PLC (ADR) (NYSEMKT:BTI) made a non-binding proposal to buy the 58% of Reynolds American, Inc. (NYSE:RAI) shares that it does not currently own. According to the proposal terms, British American Tobacco will pay $56.50 per share, of which $24.13 would be in cash and $32.37 would be in British American shares. British American’s management expects the deal, if approved, to be accretive to earnings in the first full year and to also be accretive to dividends per share. The combination of the two would create the world’s largest listed tobacco company by net turnover and operating profit. Reynolds American, whose shares are up by 16% today on the news, has said that its board of directors will evaluate the offer and respond accordingly.

According to our data, 40 funds that we track were long Reynolds American, Inc. (NYSE:RAI) at the end of June, while 15 were shareholders of British American Tobacco PLC (ADR) (NYSEMKT:BTI).

Disclosure: None