The markets are relatively calm on the day before the Brexit vote. All three index futures are near flat, and crude futures are well in the green on the back of solid API numbers yesterday.
In this article, we take a closer look at five stocks traders are buzzing about, Tesla Motors Inc (NASDAQ:TSLA), SolarCity Corp (NASDAQ:SCTY), Adobe Systems Incorporated (NASDAQ:ADBE), Covenant Transportation Group, Inc. (NASDAQ:CVTI), and FedEx Corporation (NYSE:FDX), and analyze how the elite funds are positioned towards them.
Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 700 hedge funds, whose quarterly 13F filings we analyze and determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (see the details here).
A Musk Marriage Proposal
Tesla Motors Inc (NASDAQ:TSLA) made a bid to acquire SolarCity Corp (NASDAQ:SCTY) in an all-stock deal, offering 0.122 to 0.131 Tesla shares for each share of the solar panel installer. SolarCity shares have soared by 17% in the pre-market on the back of the news, while Tesla shares didn’t do as well, retreating by 10%. Because the proposed transaction is all stock, the merger will likely not affect the cash positions of either company. Some traders sold Tesla shares off because they questioned SolarCity’s business model and NAV assumptions, while other traders sold due to the conglomerate discount. If the merger goes through, it remains to be seen how laser-focused Musk and his team will be in achieving Tesla’s stated goal of producing half a million vehicles a year by 2018. The integration problems could make it more difficult to achieve the ambitious goal. On the other hand, the merger between the two could be a great win, as the combination of the two could form a dominant renewable energy company in EVs, solar panels, and batteries if given the right execution. A total of 39 funds from our database were long Tesla Motors Inc (NASDAQ:TSLA) and 23 funds held shares of SolarCity Corp (NASDAQ:SCTY) at the end of the first quarter.
On the next page, we find out why Adobe Systems Incorporated, Covenant Transportation Group, and FedEx Corporation are in the spotlight.