Correction: The article previously stated incorrectly that the contract value is based on constant ARS-USD exchange rate.
(Adds information about the terms of the contract between Natus’ Argentinian subsidiary and the Ministry of Health of Venezuela)
Shares of SFX Entertainment Inc (NASDAQ:SFXE), Weibo Corp (ADR) (NASDAQ:WB), SINA Corp (NASDAQ:SINA), Mattel, Inc. (NASDAQ:MAT), and Natus Medical Inc (NASDAQ:BABY) are surging on different pieces of news. Given the broader market is flat, let’s analyze why these five stocks are showing such strong relative gains and see if there is any notable hedge fund activity concerning any of them.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. We uncovered that hedge funds’ long positions actually outperformed the market. For instance, the 15 most popular small-cap stocks among over 700 funds that we track beat the S&P 500 ETF (SPY) by more than 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 56% gain for SPY (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
SFX Entertainment Inc (NASDAQ:SFXE) is up 29.8% in early morning trade after its CEO Robert Sillerman disclosed in a filing that he holds an activist stake of 38.8 million shares and offered to acquire the rest of the shares he doesn’t own for up to $3.25 per share in cash under the following terms:
“Under the proposed transaction, stockholders of the Company would receive at closing up to $2.25 in cash per share and a non-tradeable contingent payment right (CPR) entitling the holder to receive up to an additional $1.00 per share in cash upon a future sale of the Company. Under the terms of the CPR, the holders would receive in the aggregate 10% of the common equity value of the Company based on the price paid in such sale (or if the Company is not sold within five years of closing, 10% of the appraised common equity value of the Company), up to an aggregate of $100 million. The upfront payment will be constituted of $1.75 plus 100% of the payment I will receive applied pro rata to all shareholders, up to $50MM, for the credit and other support I have provided to the Company.”
Given the price of SFX Entertainment is $1.34 per share at this time, investors clearly don’t think the company will sell for anywhere close to Sillerman’s max offer, however. Shares have not done well given the company has missed several analyst earnings expectations in a row.
According to our data of around 730 elite funds, hedge funds were divided on SFX Entertainment Inc (NASDAQ:SFXE) during the second quarter. A total of 16 funds reported stakes worth $57.54 million (representing 13.70% of the float) in the latest round of 13F filings, up from 15 funds and $51.5 million respectively a quarter earlier. Currently 15.95% of the float is short. Daniel S. Och‘s OZ Management owns 4.12 million shares.
Weibo Corp (ADR) (NASDAQ:WB) and SINA Corp (NASDAQ:SINA) are up after Alibaba offered to acquire Youku Tudou for $26.6 per share. The potential for an acquisition of Weibo, of which Alibaba owns a substantial chunk, is higher after the Youku deal. If Weibo gets acquired, SINA stock will go up even more, because it owns a significant stake in Weibo. However, any takeover or added investment is pure speculation at the moment, although many investors believe SINA’s intrinsic valuation is substantially higher than its current price.
On the next page, we will see why Natus Medical and Mattel shares are up.