Why Traders Are Buzzing about These Stocks: Yahoo, Alibaba, and More

It’s a red day on Wall Street as all three indexes have opened in the red. The S&P 500 is off 0.7%, the Dow is down 100 points, and the NASDAQ is off almost three quarters of a percent. Among the stocks buzzing today are Yahoo! Inc. (NASDAQ:YHOO), Macy’s, Inc. (NYSE:M), Alibaba Group Holding Ltd (NYSE:BABA), Valeant Pharmaceuticals Intl Inc (NYSE:VRX), and The Kroger Co (NYSE:KR). Let’s see how elite funds are positioned among the five stocks and take a closer look at the events causing each to be in the spotlight.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).

Analysts Upgrade Yahoo

Analysts at Citigroup have upgraded Yahoo! Inc. (NASDAQ:YHOO) to ‘Buy’ from ‘Neutral’ and bumped up their price target to $40.79 per share from $37.32 per share. The analysts cited six factors that have created a favorable risk/reward for shares, including Alibaba’s agreement to buy back shares from Softbank, Alibaba’s more positive outlook, and credible news reports of the sales auction. In regards to the auction, the analysts at Citigroup think Yahoo’s all-in sale price of its core assets will fetch at least $5 billion, and the implied discount to Alibaba and Yahoo Japan will shrink after Yahoo sells off those assets. Among the funds we track, 97 funds owned $7.92 billion worth of Yahoo! Inc. (NASDAQ:YHOO)’s stock, which accounted for 22.70% of the float on March 31, versus 84 funds and $5.92 billion, respectively, a quarter earlier. 

Macy’s Prevents Labor Stoppage

Macy’s, Inc. (NYSE:M) is slightly higher after the retailer struck a tentative deal with a union representing 3,500 workers at the company’s flagship store in NYC and 1,500 workers elsewhere. The Retail, Wholesale, and Department Store Union wanted Macy’s to address issues concerning pensions, health care, and scheduling. The union and Macy’s management pulls an all-nighter to reach a deal satisfactory to both sides to avert a strike. A total of 55 funds from our database had a long position in Macy’s, Inc. (NYSE:M) at the end of the first quarter.

On the next page, we examine Alibaba Group Holding, Valeant Pharmaceuticals, and The Kroger Co.

Alibaba Not Interested In Buying Paramount

Although Alibaba founder Jack Ma recently met with Shari Redstone, the daughter of the controlling shareholder of Viacom, Inc. (NASDAQ:VIAB), Sumner Redstone, it seems that Alibaba Group Holding Ltd (NYSE:BABA) isn’t interested in purchasing the company’s Paramount Pictures unit. According to The Street, the e-commerce giant is more interested in licensing deals instead. Alibaba has been a serial acquirer since its IPO and certainly has the resources to pull the deal off if it wanted to. At the end of March, 67 elite funds tracked by us owned shares of Alibaba Group Holding Ltd (NYSE:BABA).

Technical Selling Detected at Valeant 

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has declined by 4% today amid broader market weakness. The company’s stock has been in a sharp downtrend due to concerns that its considerable debt load and inability to raise prices as before could hurt the company’s earnings results. Valeant is also in the news today after announcing the launch of a new PreserVision AREDS 2 Formula + Multivitamin. The new version is made by Valeant’s Bausch + Lomb division, which some traders regard as the company’s crown jewel. The number funds from our database with holdings in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) fell by 12 quarter-over-quarter to 71 at the end of March.

Kroger Co Rallies on Earnings

The Kroger Co (NYSE:KR) is one of the few stocks in the green today, having advanced by over 2%. The grocer reported earnings of $0.70 per share on revenue of $34.6 billion, beating earnings estimates by $0.01 per share, but missing revenue expectations by $280 million. Identical supermarket sales without fuel grew by 2.4% year-over-year and the company exceeded its goal of slightly expanding FIFO operating margin without fuel and Roundy’s on a rolling four-quarter basis. The number funds tracked by us with holdings in The Kroger Co (NYSE:KR) fell by nine quarter-over-quarter to 30 at the end of March.

Disclosure: none