Here’s Why These Five Stocks Are Surging

All three major indexes are lower today after U.S. construction spending for the month of August unexpectedly fell for the second-consecutive month. According to the Commerce Department, construction spending inched lower by 0.7% year-over-year, versus expectations of a rise of 0.2%.

Although the broader indexes might be lower, shareholders of Nutanix Inc (NASDAQ:NTNX), VirnetX Holding Corporation (NYSEMKT:VHC), Payment Data Systems, Inc. (NASDAQ:PYDS), Five Star Quality Care, Inc. (NASDAQ:FVE), and Cognizant Technology Solutions Corp (NASDAQ:CTSH) are certainly happy today, as each stock has surged for various reasons. In this column, we’ll find out why traders are piling into the five stocks and check in on the smart money sentiment to see how some of the top hedge funds in the world were trading these equities in the second quarter.

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).

After surging by 130% from its IPO price of $16 per share on the first day of trading, Nutanix Inc (NASDAQ:NTNX) shares are up by another 10% today as bullish traders buy the stock for its momentum characteristics. Some long-term investors may also be buying the stock for its strong growth potential, should the company execute well. Given that it has just entered into the public-trading arena, Insider Monkey doesn’t have any hedge fund holdings numbers concerning Nutanix Inc (NASDAQ:NTNX) yet.

VirnetX Holding Corporation (NYSEMKT:VHC) shares have surged by 35% after a jury ruled that Apple Inc. (NASDAQ:AAPL) should pay the company $302.4 million for infringing on two of its patents in relation to the tech giant’s FaceTime feature. Apple has, in turn, said that it will appeal and that VirnetX should only be awarded a maximum sum of $25 million. Given VirnetX’s current market cap and price action, it is evident that the market doesn’t expect VirnetX to receive the headline sum. Most traders expect the ultimate decision to be made by the U.S. Court of Appeals for the Federal Circuit in Washington. Of the 749 hedge funds that we track which filed 13Fs for the June quarter, five of them owned $976,000 worth of VirnetX Holding Corporation (NYSEMKT:VHC) shares at the end of the second quarter, which accounted for just 0.40% of its float.

On the next page, we’ll examine why Payment Data Systems, Five Star Quality Care, and Cognizant Technology are in the green today.

Nano-cap Payment Data Systems, Inc. (NASDAQ:PYDS) is 26% in the green this afternoon on strong volume for technical reasons. Although there is no public fundamental news concerning the stock as of this time, some momentum traders could be buying to catch the wave up, however long it might last. As with all nano-caps, investors should exercise due-diligence before considering any trade of the stock. Payment Data Systems, Inc. (NASDAQ:PYDS) wasn’t held by any of the funds in our database on June 30.

Five Star Quality Care, Inc. (NASDAQ:FVE) shares have surged by 48% after the company disclosed in a press release that it understands that ABP Acquisition LLC intends to make a tender offer for up to 10,000,000 shares of the company, at $3.00 per share. ABP Acquisition is affiliated with a managing director of Five Star, Mr. Barry Portnoy. Nine funds that we track were long 16.7% of Five Star Quality Care, Inc. (NASDAQ:FVE)’s float at the end of the second quarter.

After falling by 12.4% last week on the back of the news that it is conducting an internal investigation as to whether certain payments relating to facilities in India were made in possible violation of the U.S. Foreign Corrupt Practices Act, as well as the fact that the DoJ and SEC now know about them, Cognizant Technology Solutions Corp (NASDAQ:CTSH) is 5% in the green after Deutsche Bank analyst Bryan Keane defended the company, arguing that the investigation/executive change doesn’t really affect the company’s fundamentals. Keane has a $69 price target and a ‘Buy’ rating on the stock. Gordon Coburn, who was the company’s de facto second-in-command, announced his resignation last week. Anand Parekh‘s Alyeska Investment Group raised its holding in Cognizant Technology Solutions Corp (NASDAQ:CTSH) by 37% during the second quarter, to over 1.65 million shares at the end of June.

Disclosure: None