With the markets relatively flat today as investors prepare for the release of Apple Inc.(NASDAQ:AAPL)’s earnings after the bell, four stocks have broken free of the pack and are making impressive (or unimpressive) moves today on high trading volume. Let’s run through the catalysts that have investors optimistic or pessimistic about these stocks today and study how elite hedge funds have been trading them.
We’ll start with GrubHub Inc (NYSE:GRUB), which is making a big move in the wrong direction today. Shares are down by 25.05% in early afternoon trading as the company guided light for the fourth quarter and also displayed an inability to control costs in its third quarter results. While active diners rose by 41% year-over-year, EBITDA grew by just 5% to $21.5 million as costs spiraled northward by 47% compared to the third quarter of 2014. Analysts had been expecting EBITDA of $24.9 million. More disappointment was seen in the company’s EBITDA guidance for the fourth quarter, which was $23 million-to-$25 million, well below expectations of $29.6 million. The results will prove a disappointment and a temporary setback to hedge funds, whose bullishness ranked it as a small-cap stock poised for big things. Goldman Sachs predicts that GrubHub Inc (NYSE:GRUB)’s operating income will double between 2014 and 2017. Christian Leone’s Luxor Capital Group held a 7.55 million-share stake in GrubHub Inc (NYSE:GRUB) as of June 30, which had been buffed by 114% during the second quarter.
A reader might question our decision to focus on the small-cap category, considering that it’s mostly the larger counterparts of these companies that head the portfolios of most hedge funds. The reason for our focus is simple. Our research has shown that in the period between 1999 and 2012 the top small-cap picks of hedge funds outperformed the broader market by nearly one percentage point per month, whereas the top overall picks (mostly large-caps) underperformed by seven basis points per month during the same period. Why pay high fees to own a glut of low-performing stocks when you can invest on your own in hedge funds’ best stock picks? Since its launch in August 2012, Insider Monkey’s small-cap strategy has outperformed the S&P 500 every year, returning 102% since then, over two-times greater returns than the S&P 500 (read the details here).
Cadence Design Systems Inc (NASDAQ:CDNS) is having a much better day, up by 2.81% this afternoon, though it’s given back some of its gains from earlier today. A top tech pick of Fir Tree in the second quarter, which was founded by Jeffrey Tannenbaum, the software company beat third quarter earnings estimates, posting earnings per share (EPS) of $0.28 for the quarter, a beat of $0.02. Revenue of $433.76 million was also slightly ahead of estimates and up by 8.7% year-over-year. The market is not punishing Cadence Design Systems Inc (NASDAQ:CDNS) for its somewhat soft fourth quarter guidance, as the company predicts EPS will fall back to a range of $0.20-to-$0.22. Cadence Design Systems Inc (NASDAQ:CDNS) had its price target lifted to $25 by RBC Capital Markets following the earnings report, up from $23.
On the next page we’ll dig into two more of the day’s trending stocks.