With earnings season officially slated to begin this week, five stocks, Hatteras Financial Corp. (NYSE:HTS), Annaly Capital Management, Inc. (NYSE:NLY), Bloomin’ Brands Inc (NASDAQ:BLMN), Seagate Technology PLC (NASDAQ:STX), and Toll Brothers Inc (NYSE:TOL), have shown more volatility than most. Let’s find out why investors are buying and selling and analyze hedge fund sentiment toward the equities, if relevant.
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).
It is M&A Monday as Annaly Capital Management, Inc. (NYSE:NLY) has announced a definitive merger agreement, where it will acquire Hatteras Financial Corp. (NYSE:HTS) for around $15.85 per share. Hatteras shareholders can receive all cash, 1.5226 shares of Annaly, or 0.9894 shares of Annaly and $5.55 in cash. The cash component is subject to a condition where 35% of the total consideration paid for the acquisition must be in cash. Annaly management expects the deal to be accretive to the company’s book value per share and core earnings in 2016. Annaly CEO Kevin Keyes said:
“This strategic transaction represents a unique and sizeable value creation opportunity for our shareholders. With the acquisition of Hatteras, we significantly grow our diversified portfolio and broaden our investment options, further fortifying Annaly’s position as the market leading mortgage REIT.”
Annaly Capital Management, Inc. (NYSE:NLY) is 1.3% in the red while Hatteras Financial Corp. (NYSE:HTS) shares are more than 10% in the green on the news. As of December 31 2015, 10 funds from our database held 2.7% of Annaly’s float while nine investors amassed held 8.2% of Hatteras. Jim Simons’ Renaissance Technologies reported positions in both companies in its last 13F filing.
Bloomin’ Brands Inc (NASDAQ:BLMN)’s shares are 3.68% in the green today after receiving some analyst love from Credit Suisse. According to a newly released report from the investment bank, falling beef prices and a steadying Brazilian real could help earnings of the restaurant chain, while the company’s investments in its marketing, technology and menus could help its same store sales recover. The analysts also wrote:
“[if] fundamentals improve, the stock has significant upside on multiple expansion and rising investor confidence. If fundamentals do not improve, strategic action may come to the fore.”
Because of those factors, the analysts upgraded Bloomin’ Brands Inc (NASDAQ:BLMN) to ‘Outperform’ from ‘Neutral’ and raised their price target to $21 per share from $17. Bloomin’ Brands also has some hedge fund fans, with 22 investors among those we track owning $284.89 million worth of the company’s shares and accounting for 14.10% of the float on December 31.
On the next page, we examine Seagate Technology PLC, and Toll Brothers.
Seagate Technology PLC (NASDAQ:STX) received the Barron’s lift today as its shares have surged almost 7% on a positive mention from a column published during the weekend. According to the Barron’s writer, there is reason for optimism given Seagate’s 7.5% dividend yield, management’s goal of cutting costs, and the company’s healthy earnings. The author also likes how the company is basically doubling down on the hard drive market. Because of the safe dividend and management’s strategy, the author thinks Seagate could rally 20% or more in the coming year.
A total of 25 funds from our database held roughly 3.4% of Seagate Technology PLC (NASDAQ:STX)’s outstanding stock heading into 2016, with Cliff Asness’ AQR Capital Management among them.
Not to be left out, Toll Brothers Inc (NYSE:TOL) was also the beneficiary of the Barron’s lift today after the esteemed financial magazine published a glowing column on the home builder. In the piece, the author stated that investors are overestimating the potential oversupply in the luxury segment of Manhattan and that the homebuilder has a 40% upside. Among the funds we track, 30 reported long positions in Toll Brothers Inc (NYSE:TOL) as of the end of 2015. Toll Brothers’s stock has gained 1.80% so far on Monday.