What Is Going On With These Four Stocks On The Move?

Shares of General Electric Company (NYSE:GE), PTC Therapeutics, Inc. (NASDAQ:PTCT), American Airlines Group Inc (NASDAQ:AAL) and Spirit Airlines Incorporated (NASDAQ:SAVE) are trending, as investors digest various pieces of news related to the companies. Let’s take a closer look at the catalysts causing their price changes today and see if the smart money tracked by Insider Monkey disagrees with the market on any of them.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

General Electric Company (NYSE:GE) is up by 1.8% after beating earnings expectations but missing revenue estimates. For its third quarter, the company earned an adjusted $0.29 per share on revenues of $27.90 billion, versus estimates of $0.26 in EPS on revenues of $28.59 billion. The industrial division’s margins jumped by 1% and its outlook is strong, with the company reiterating its previous earnings forecast. At a forward P/E of 18.3 and with a dividend yield of 3.28%, General Electric’s shares look attractive, particularly as the U.S economy picks up steam and management uses its GE Capital sale proceeds to buy back tens of billions of dollars worth of stock over the next three years. Management expects to buy back as much as 7% of the float by the end of November.

Many hedge funds from our database also own shares of General Electric. Of the 730 funds in our database, 70 of them held $3.72 billion worth of the company’s shares at the end of June, up from 62 funds with $3.13 billion in shares a quarter earlier. However, they still held just 1.4% of the float. Ken Fisher‘s Fisher Asset Management upped its stake by 2% on the quarter to 30.71 million shares, while Nelson Peltz’s Trian Partners has recently bought a $2.5 billion stake in the company (see details). Bill Ackman’s Pershing Square spent a lot of time considering buying a stake but decided against it because it wasn’t cheap enough.

PTC Therapeutics, Inc. (NASDAQ:PTCT) is up by 2.46% on strong volume after releasing the results of a phase 3 trial of Translarna yesterday, an oral protein restoration therapy for the treatment of nonsense mutation Duchenne muscular dystrophy. The drug did not meet the primary endpoint, but showed benefits over a placebo on secondary and tertiary endpoints. From the press release:

In the overall intent-to-treat study population, the primary endpoint of change from baseline in the 6-minute walk test (6MWT) demonstrated a 15 meter benefit (p=0.213), which was not statistically significant. A highly significant benefit of 47 meters (p=0.007) was demonstrated in the pre-specified patient population of 300-400 meters at baseline as measured by the 6MWT, which is in line with the Company’s prior experience in its Phase 2b trial and consistent with the evolving understanding of the 6MWT. Importantly, no patients in this group lost ambulation (0/47) versus four patients in the placebo group (4/52). Translarna showed a benefit over placebo across key secondary and tertiary endpoints, including timed function tests (10 meter Run/Walk, 4 Stair Climb, 4 Stair Descend) and the North Star Ambulatory Assessment test.

On the next page, we’ll analyze why Spirit is down and why American Airlines is trending.

Spirit Airlines Incorporated (NASDAQ:SAVE) is down by over 13% after warning that its fourth quarter revenue will decline more than expected.  From the press release:

Prices in the markets we serve are low, and we don’t expect that to change in the foreseeable future. Despite third quarter revenue in line with our expectations, we now expect the year-over-year unit revenue decline in the fourth quarter will be greater than the year-over-year unit revenue decline we experienced in the third quarter. However, our full year operating margin guidance range of 21.5 to 23.0 percent remains intact.

The regional airline’s fourth quarter revenue will come in lower than expected because American Airlines Group Inc (NASDAQ:AAL) is cutting prices on some routes to drive budget airlines out. Analysts don’t think American Airlines Group can win, however, as Spirit Airlines has substantially lower costs. Judging by the price action, the market isn’t so sure. American Airlines currently has a substantial amount of cash flow to spend because of low crude prices.

Disclosure: None