At a time when the S&P 500 can’t seem to break above the 2,100 level, shares of KaloBios Pharmaceuticals Inc (NASDAQ:KBIO), Five Below Inc (NASDAQ:FIVE), Barrick Gold Corporation (USA) (NYSE:ABX), Vipshop Holdings Ltd – ADR (NYSE:VIPS), and Live Ventures Inc (NASDAQ:LIVE) are on fire. Let’s take a closer look at why investors are buying.
In addition, let’s also analyze relevant hedge fund activity toward the stocks. 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.
Martin Shkreli may be ‘the most hated man in biotech’ for raising the price of an essential drug 55x overnight, but he has been a white knight for KaloBios Pharmaceuticals Inc (NASDAQ:KBIO), a biotech company that was in the process of liquidating before Shkreli bought the majority of the company’s stock. Shkreli’s actions and the small float prompted a short squeeze of epic proportions that may or may not be over. Shares of KaloBios Pharmaceuticals Inc (NASDAQ:KBIO) are up 8.7% on the day after the company announced it will raise $8.2 million in much needed capital from a private placement. The company also announced a deal to acquire a benznidazole program that treats Chagas disease for an upfront payment of $2 million plus milestone and royalty payments. We would stay on the sidelines on this one.
Next up is Five Below Inc (NASDAQ:FIVE), whose stock has rallied over 5% today after the company beat earnings and revenue expectations for its third quarter. The teen-orientated retailer reported earnings of $0.08 per share on revenue of $169.69 million, versus estimates of $0.07 per share and revenue of $166.6 million. Comparable-store sales rose by 4.8% year-over-year and management expects fourth quarter EPS and revenue largely in line with expectations. Of the around 730 elite funds we track, 12 held $148.28 million worth of Five Below Inc (NASDAQ:FIVE)’s shares, accounting for 8.10% of the float on September 30.
While gold has been in a downtrend recently, Barrick Gold Corporation (USA) (NYSE:ABX) has surged by 6% on Friday after gold spot prices rallied 2% and after the company announced it had reached a deal with its creditors to extend its mostly undrawn $4 billion revolver loan for another year. Barrick Gold Corporation (USA) (NYSE:ABX) also renegotiated a covenant change that requires the company to maintain a net debt to total capitalization ratio of less than 0.60 in the place of a minimum net worth requirement. Barrick’s net debt to total capitalization was 0.42 at the end of the third quarter. Gold is rallying today because crude prices are lower. If crude prices stay low for long enough, geopolitical disturbances will occur that will send gold prices higher (although when and if that time comes is anyone’s guess).
On the next page, we examine why Vipshop and Live Ventures are up today.