Why Are Investors So Excited About These Four Stocks Today?

Four stocks have investors excited about their future returns potential this morning as each of them is making big moves on the back of various tidbits of news. Let’s check in on the news that has sent shares of Natural Health Trends Corp. (NASDAQ:NHTC), Cloud Peak Energy Inc. (NYSE:CLD), Infinera Corp. (NASDAQ:INFN), and Northrop Grumman Corporation (NYSE:NOC) soaring, and whether or not investors should expect this high-flying trend to continue.

Let’s start with Northrop Grumman Corporation (NYSE:NOC), which has gained 5.75% in trading today after releasing its third quarter earnings results before this morning’s opening bell. The security and defense contractor posted a big beat on the earnings side of its ledger, pulling in $2.75 in earnings per share compared to estimates of $2.20 per share. The firm’s $6 billion in revenue also beat estimates by more than $140 million. The market was also impressed with the upgraded earnings guidance for the full year, to $9.70-to-$9.80 per share from previous guidance of $9.55-to-$9.70 per share.

The gains for Northrop Grumman Corporation (NYSE:NOC) today cap off a strong October for the stock, which is up by over 15% this month. The October surge comes after we declared it a good buy at the beginning of the month, as we believed the market had pushed it down too much amid the broader market pullback. First Eagle Investment Management owned 5.89 million shares of the defense firm as of June 30, while AQR Capital Management, led by Cliff Asness, owned 2.47 million shares.

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activity. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds partly underperformed because they aren’t 100% long. Hedge funds’ fees are also very large compared to the returns generated, which reduces the net returns delivered to investors. We uncovered through extensive research that historically, hedge funds’ long positions in certain stocks actually outperformed the market greatly, and it has held true to this day. For instance, the 15 most popular small-cap stocks among funds has beaten the S&P 500 Index by more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. less than a 49% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying, particularly in the small-cap sector, rather than what their net returns are, which the media primarily focuses on.

Let’s move on to Natural Health Trends Corp. (NASDAQ:NHTC), ahead by 15.85% today on the valuation score sheet. The direct seller of health and beauty products posted its own third quarter results after the closing bell yesterday, which amounted to earnings per share of $1.18 and $80.8 million in revenue, a quarterly record for the company and up by 154% year-over-year. The Dallas-based firm also announced a 25% uptick in its dividend, to $0.05. Natural Health Trends Corp. (NASDAQ:NHTC) was beginning to garner a lot more interest from the elite hedge funds that we track during the second quarter. The number of those investors long the stock rose to nine from five, while the value of their collective holdings was more than quadrupled to over $40.61 million. Jim Simons‘ Renaissance Technologies was the largest of those shareholders, owning 295,400 shares as of June 30.

Two more market movers are analyzed on the next page.

Cloud Peak Energy Inc. (NYSE:CLD) has gone against the market’s distaste for coal stocks, posting gains of over 10% today on strong quarterly results. The Powder River Basin coal operator earned $0.24 per share, while the market had been anticipating a loss of $0.13 per share. While coal shipments were down by 3.2% year-over-year to 20.8 million tons, expenses fell by 14.1% during the same timespan. With many other coal players reporting dismal results already this quarter, Cloud Peak Energy Inc. (NYSE:CLD)’s results do not signal a turnaround for coal, but simply exceptional management by the company in question, allowing it to stand as an outlier in the industry. Simons’ RenTech was also the top shareholder of Cloud Peak Energy in our database as of June 30.

Lastly is Infinera Corp. (NASDAQ:INFN), which has risen by 12.79% today, also on the strength of an earnings beat. Earnings of $0.22 beat estimates by over 29%, while revenue was up by 12.5% year-over-year to $232.47 million. Product revenue enjoyed especially strong growth for the provider of optical communication equipment, being up by over 37% to $202.37 million. Infinera Corp. (NASDAQ:INFN) recently released two new products, the DTN-X XT Series and the DTN-X XTC Series. Billionaire Jim Simons is enjoying gains from many of the stocks in this article, as he also held shares of Infinera on June 30, as did 24 other investors in our database, who owned 8.50% of its shares in aggregate.

Disclosure: None