It was a busy week to wrap up the third quarter. Not only did OPEC’s agreement inject confidence in the oil market, but also the U.S. government may have made some moves to improve sentiment in the financial sector as well.
In this article, we will put three tech stocks and two financial stocks under the microscope and will see why investors are eagerly watching each stock. The companies in question are: Yahoo! Inc. (NASDAQ:YHOO), Alphabet Inc (NASDAQ:GOOG), Twitter Inc (NYSE:TWTR), Wells Fargo & Co (NYSE:WFC), and Deutsche Bank AG (USA) (NYSE:DB), and, in addition, we are going to assess the hedge fund sentiment towards these stocks.
Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 740 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).
The exact scale of Yahoo! Inc. (NASDAQ:YHOO)‘s 2014 security breach is now up for question. Although initial reports said that the hack revealed some information of over ‘500 million users’, a former Yahoo insider has told Business Insider that the number of affected users could be north of that given Yahoo’s architecture at the time. The insider was quoted as saying: “I believe it to be bigger than what’s being reported. How they came up with 500 is a mystery”. If the hack revealed information on more users, Yahoo might have more liability than before. As for the smart money, they were optimistic on the company at the end of the second quarter. According to our data, 81 funds that we track amassed 19.00% of Yahoo! Inc. (NASDAQ:YHOO)’s float on June 30.
Two more tech companies are in the spotlight after Bloomberg reported that Alphabet Inc (NASDAQ:GOOG) has hired Lazard, an investment bank, to advise it on a potential bid for Twitter Inc (NYSE:TWTR). Although no offer is guaranteed to be made, many investors think Alphabet is a natural acquirer for Twitter given the internet conglomerate’s rather soft social-media presence. Alphabet’s Google unit has tried to get involved in the social network segment before, such as with Google Plus, but has failed. With tens of billions of dollars on its balance sheet, Alphabet could certainly afford the purchase as well. Among the funds we track, 30 investors were long Twitter Inc (NYSE:TWTR) and 126 funds held class C shares of Alphabet Inc (NASDAQ:GOOG) at the end of the second quarter.
On the next page, we examine why Wells Fargo & Co and Deutsche Bank AG (USA) are in the spotlight.