Volatility is taking a breather today as all three major indexes are relatively flat despite China’s main index falling by over 5% overnight. Among the stocks on the move today are Apple Inc. (NASDAQ:AAPL), Kohl’s Corporation (NYSE:KSS), General Motors Company (NYSE:GM), and Alcoa Inc (NYSE:AA), with three of them on the green side of the divide, while one is trading in the red. Let’s take a closer look at the trading action involving these four stocks and the news surrounding those companies. Moreover, we will also examine relevant hedge fund sentiment towards these equities.
Why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually (see the details here).
Apple Inc. (NASDAQ:AAPL) is in the green today after investment bank Mizuho upgraded its stock to ‘Buy’ from ‘Neutral’. Although the firm lowered its price target on the stock by $5 to $120 per share, analysts at the bank believe that Apple’s recent stock retreat has created a good risk/reward opportunity. Despite plenty of data showing that iPhone sales might disappoint the bullish expectations for them over the next few quarters, as one Apple supplier after another cuts their guidance. Apple Inc. (NASDAQ:AAPL)’s revenue and profit streams are more sustainable than many bears might think however, given the company’s fast-growing app store revenue and its software lock-ins. Helping the bullish case is word that the company’s Apple Music offering has officially crossed the 10 million-subscriber mark about six months after its launch, making Apple Music one of the largest music subscription services in the world. Of the around 730 elite funds that we track, 133 of them owned shares of the tech giant at the end of the third quarter. That figure was down by 11 funds from the end of the prior quarter.
Investors have pushed Kohl’s Corporation (NYSE:KSS) up by 3% this morning after the Wall Street Journal published a report stating that the national department store chain is considering drastic actions such as breaking itself apart or taking itself private. Kohl’s could be a potential target for activists and other like-minded market participants because of the stock’s disappointing performance since last April and its relatively solid fundamentals. By considering break-up and take-private actions now, Kohl’s management is trying to ‘get ahead of the situation’ on their own terms before an activist does it for them. According to our data, many quant funds, including Cliff Asness‘ AQR Capital Management and Jim Simons‘ Renaissance Technologies own shares of the company.
On the next page, we examine General Motors Company and Alcoa Inc.