Why Adobe, Starwood, Chesapeake, Wynn and Columbia Pipeline Are Flying High Today

The markets are surging today, with all major U.S stock indexes up by about 0.5%, and oil up as well. Among the stocks driving the surges in the markets, investors can count Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT), Adobe Systems Incorporated (NASDAQ:ADBE), Chesapeake Energy Corporation (NYSE:CHK), Wynn Resorts, Limited (NASDAQ:WYNN) and Columbia Pipeline Group Inc (NYSE:CPGX), all of which have made big gains today as of early afternoon trading. Let’s take a look at the events behind these gains and into what the hedge funds in our database think about the companies in question.

At Insider Monkey, we track around 785 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Let’s start with Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT), which is up by almost 5% in trading today. The company announced this morning that it was calling off its deal with Marriott International Inc (NASDAQ:MAR), which had offered $12.2 billion to acquire the company, in order to take a higher bid from a consortium of investors led by the Chinese insurance company Anbang and J.C. Flowers. The group offered $78 per share in cash, or more than $14 billion. The owner of the Sheraton and Westin hotel brands gave Marriott until March 28 to submit a counteroffer.

More than 6% of the funds that we track (52 out of roughly 785) were long Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) as of the end of the fourth quarter. These firms held more than 27% of the company’s total shares. Among them was John Paulson’s Paulson & Co, which disclosed ownership of 11.6 million shares of the company as of the end of 2015, making it the largest investor of record to date.

Next up is Adobe Systems Incorporated (NASDAQ:ADBE), which is up by about 4.5% this afternoon following the release of the company’s first quarter of fiscal year 2016 financial results on Thursday evening. The software maker posted earnings of $0.66 per share for the quarter, beating the Street’s consensus by $0.05, on revenue of $1.38 billion, which also came in $40 million above expectations. Guidance was also strong; management said that it envisions fiscal second quarter revenue of $1.365 billion-to-$1.415 billion and EPS of $0.64-to-$0.70. Analysts have predicted sales of $1.39 billion and EPS of $0.65.

Adobe Systems Incorporated (NASDAQ:ADBE) is a popular stock among hedge funds. 46 firms in our database disclosed long positions in the company as of December 31, with their combined stakes valued at more than $3.71 billion and accounting for almost 8% of the company’s shares. The largest shareholder in our system was Jeffrey Ubben’s ValueAct Capital, which held 14.01 million shares of the company worth $1.31 billion.

Also up by approximately 4.5% on Friday is Chesapeake Energy Corporation (NYSE:CHK). Two different events could be driving said surge: higher oil prices and a potential debt swap. Brent Crude is up by about 0.7% today, while WTI Crude has gained more than 0.2% so far. On the other hand, Reuters reported late Thursday that Chesapeake is considering swapping out some of its current debt for new 1.5 lien debt; while details have not been disclosed yet, a report from CapitalStructure says the swap looks attractive, taking into account the current pricing of the company’s bonds.

Among the funds that we keep track of, 32 held long positions in Chesapeake Energy Corporation (NYSE:CHK) heading into 2016, with their stakes amassing almost 24% of the company’s total shares as of December 31. Carl Icahn’s Icahn Capital LP was the largest institutional investor of record in the company at the end of the fourth quarter, holding 73.05 million shares. However, on February 12, Mason Hawkins’ Southeastern Asset Management displaced Icahn after declaring ownership of 89.57 million shares, up from 55.67 million shares held on December 31.

Another big gainer in Friday trading is Wynn Resorts, Limited (NASDAQ:WYNN), which is up by almost 7% after Macquarie Research upgraded its rating on the Macau casino industry to ‘Neutral’, while Deutsche Bank raised its price target on Wynn in particular to $94 from $82 and maintained a ‘Buy’ rating on the stock. Macquarie based its ratings promotion for the industry on an updated outlook. The firm’s analysts now expect gross gaming revenue to decline by only 6%, instead of the 13% tumble expected previously. The report cited several factors behind the more optimistic view, including growth in residential real estate investments and China import value. However, Macquarie pointed out that Wynn remains its “top-short pick.”

As of the end of the fourth quarter, 30 funds among those we track were long Wynn Resorts, Limited (NASDAQ:WYNN), their stakes accounting for almost 20% of the company’s outstanding stock. Once again, Southeastern Asset Management was the largest investor of the stock in our database, holding more than 12.58 million shares valued at roughly $870 million on December 31.

Finally, there’s Columbia Pipeline Group Inc (NYSE:CPGX), which is up by about 5.8% this afternoon. On late Thursday, TransCanada Corporation (USA) (NYSE:TRP) agreed to acquire the company for $25.50 per share in cash, an 8.5% premium to the stock’s closing price on Thursday. The deal values the company at about $13 billion, including $2.8 billion in assumed debt. Columbia Pipeline Group, the general partner of Columbia Pipeline Partners LP (NYSE:CPPL), said the partnership will remain publicly traded.

Columbia Pipeline Group Inc (NYSE:CPGX) counted the support of 25 funds among those we track at the end of the fourth quarter. Their stakes, valued at $856.34 million on December 31, accounted for 13.5% of the company’s total shares. One fund that seemed particularly bullish was Stuart J. Zimmer’s Zimmer Partners, which acquired 10.98 million shares over the October-to-December period, taking its holding to 12.83 million shares, valued at more than $256 million.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned in this article.