At a time when all three indices are in the red in anticipation of a Federal Reserve interest rate hike later in the month, shares of Keurig Green Mountain Inc (NASDAQ:GMCR), Sodastream International Ltd (NASDAQ:SODA), MEI Pharma Inc (NASDAQ:MEIP), Idera Pharmaceuticals Inc (NASDAQ:IDRA), and JetBlue Airways Corporation (NASDAQ:JBLU) are going the opposite way. Given the strong volumes associated with their moves, let’s take a closer look at what has propelled these stocks higher.
In addition, let’s also analyze relevant hedge fund sentiment toward these 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.
First up is Keurig Green Mountain Inc (NASDAQ:GMCR), whose stock surged by 72% to around $89 per share in morning trade after the company announced it will be acquired by JAB Holding company for $92 per share in cash. The deal, which should close in the first quarter of 2016, has made winners out of the 16 elite funds that we track that were long the stock at the end of September, including ClearBridge and Joel Greenblatt’s Gotham Asset Management. Keurig Green Mountain Inc (NASDAQ:GMCR) has been a controversial stock, as many bears expected increasing competition and less patent protection to reduce the company’s margins and EPS. Whether privately held JAB Holding company can find enough synergies in the deal to justify the premium is an open question, but GMCR bulls certainly aren’t complaining.
Next up is Sodastream International Ltd (NASDAQ:SODA), whose stock is up almost 10% because JAB Holding bought GMCR. Many Sodastream bulls think the company could be an acquisition target and the recent sale of GMCR makes the get-acquired scenario more plausible. Sodastream International Ltd (NASDAQ:SODA) currently trades at a modest 14.7 times forward earnings, around the same valuation as GMCR’s forward earnings before it was acquired. In addition, investors are buying SODA amid the company’s announcement that it will list its stock on the Tel Aviv Stock Exchange in a move that should add more demand for its shares and provide the company with more capital. Among the 11 elite funds long the stock is Jim Simons’ Renaissance Technologies, which owned 402,700 shares at the end of September.
In other news, MEI Pharma Inc (NASDAQ:MEIP) shares are up over 16% after the company reported positive results from a Phase 2 study of its Pracinostat drug, an investigation drug candidate to be used in conjunction with azacitidine for elderly patients with recently diagnosed acute myeloid leukemia. The study’s data showed that 28 of the 50 patients in the study achieved their primary endpoint of complete response in addition to other factors. On the back of these positive results, MEI Pharma Inc (NASDAQ:MEIP) plans to initiate a Phase 3 registration study.
On the next page, we examine why Idera and JetBlue are surging.