Why These Five Stocks Are Trending on Monday

Markets are tumbling on Monday, with all major U.S. indexes, oil and gold trading slightly down. However, a few stocks are registering significant moves; among them we can count Smith & Wesson Holding Corp (NASDAQ:SWHC), Sturm, Ruger & Company (NYSE:RGR), Zafgen Inc (NASDAQ:ZFGN), Edwards Lifesciences Corp (NYSE:EW) and PulteGroup, Inc. (NYSE:PHM). So, let’s take a look into the events behind these big fluctuations, and into what the funds in our database think about the companies involved.

Our research determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details here).

Let’s start with Smith & Wesson Holding Corp (NASDAQ:SWHC), whose stock has dropped by 16% on Monday, after Cowen, CL King and BB&T Capital Markets downgraded the stock. The demotions were prompted by the release of National Instant Criminal Background Check System (NICS) data for March; while firearm background checks, which are an important indicator of gun purchases, were up by 16.7% year-over-year, they were down 13.2% month-over-month – marking the largest tumble in 10 years. Cowen seemed to be the first one to issue a downgrade to ‘Market Perform’ from ‘Outperform’. BB&T and CL King followed suit, trimming their scores to ‘Hold’ and ‘Neutral’, respectively, from ‘Buy’.

Also down by near 10% on the NICS data are shares of Sturm, Ruger & Company (NYSE:RGR), as well as retailers that sell guns, Sportsman’s Warehouse Holdings Inc (NASDAQ:SPWH) and Cabelas Inc (NYSE:CAB), whose stocks slid by 3% and 0.8%, correspondingly.

Among the hedge funds that we track, 27 were long Smith & Wesson Holding Corp (NASDAQ:SWHC) by the end of the fourth quarter, and 14 were long Sturm, Ruger & Company (NYSE:RGR). Among the most bullish firms was Jim Simons’ Renaissance Technologies; the fund last disclosed ownership of 872,076 shares of the former company, following a 68% increase in its stake, and ownership of 186,600 shares of the latter, following a 294% boost in its exposure.

Shares of Zafgen Inc (NASDAQ:ZFGN) are trading up by approximately 9%, after the company announced positive data from its phase 3 bestPWS trial evaluating the safety and efficacy of its obesity drug Beloranib in Prader-Willi Syndrome patients. According to the data, the drug “was associated with improvement in total cholesterol, LDL cholesterol and other cardiometabolic risk factors, and a reduction in fat mass when compared to placebo.”

A total of 12 funds, among those we track, held long positions in Zafgen Inc (NASDAQ:ZFGN) at the end of the fourth quarter of 2015. Their combined stakes accounted for 12.5% of the company’s outstanding shares. James E. Flynn’s Deerfield Management was the largest shareholder in our database, with 843,665 shares; however, on February 11, Flynn disclosed an increase of the fund’s stake in Zafgen to 2.99 million shares, or almost 11% of the company.

Next up is Edwards Lifesciences Corp (NYSE:EW), whose stock has gained more than 17% since the bell rang on Monday morning. The spike was driven by news that the company’s alternative heart-valve procedure, which is less invasive than open-heart surgery, was not only not inferior to the latter, but even superior in some cases. In fact, all cause mortality or stroke rates were inferior in Sapien patients than in open-heart surgery patients at the two-year mark. Interestingly, analysts at JP Morgan classified the procedure as “game changing.”

Edwards Lifesciences Corp (NYSE:EW) saw the support of 37 funds in our database by December 31. However, hedge fund ownership was not very large; only 4% of the company’s outstanding stock is held by these firms. Cliff Asness’ AQR Capital Management held the largest stake, comprising 3.11 million shares, worth $245 million by the end of the year.

Finally, we’ve got PulteGroup, Inc. (NYSE:PHM), whose stock has decreased more than 7% on the announcement that chairman and chief executive officer Richard Dugas Jr will retire in May 2017, partly due to pressures from the company’s founder Bill Pulte and his grandson Jim Grosfeld, who are both part of the Board of Directors. Pulte and his grandson “recently demanded an immediate CEO change and a different direction for the company,” a company statement explained.

Overall, 24 funds in our database were long PulteGroup, Inc. (NYSE:PHM) at the end of the fourth quarter. However, once again, their stakes were not very large, and accounted for just 6.6% of the company’s stock. A noteworthy position was owned by ClearBridge, which last declared holding 6.63 million shares.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.