With the S&P 500 and Dow Jones barely in the green as investors remain concerned about China’s slowing economy, Big Lots, Inc. (NYSE:BIG), Medivation Inc (NASDAQ:MDVN), Silicon Graphics International Corp (NASDAQ:SGI), and Del Taco Restaurants Inc (NASDAQ:TACO) are each up big in afternoon trading. In this article, we examine why investors are piling into the four stocks and analyze what the smart money thinks of them.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period (see the details here).
Big Lots, Inc. (NYSE:BIG) is 3.6% higher today after it reaffirmed its fourth-quarter guidance numbers. For the holiday quarter, Big Lots expects comparable store sales to rise by 1%-to-2% and for its adjusted earnings per share to come in at $1.95-to-$2.00, in-line with guidance, and a bit higher than its EPS of $1.76 for the fourth-quarter of 2014. Because gasoline prices are so low and the U.S economy is strong, Big Lots, Inc. (NYSE:BIG) has a good probability of continuing to meet or beat its guidance numbers over the next few quarters. Shares of the discount retailer also trade at a reasonable 11-times forward earnings and pay a 2% dividend yield. Among the 18 elite funds with a holding in Big Lots are Cliff Asness’ AQR Capital Management and Joel Greenblatt‘s Gotham Asset Management.
In other news, Medivation Inc (NASDAQ:MDVN) bounced back by 3.84% today after it closed below a key technical floor of $40 yesterday. Medivation Inc (NASDAQ:MDVN) is a biotech company that focuses on the development and commercialization of new therapies to treat serious diseases such as post-chemotherapy metastatic castration-resistant prostate cancer. Its shares fell by over 11% yesterday due to the big ‘risk off’ sell-off in biotech stocks. Last month, the company commenced a phase 2 trial evaluating MDV9300, a humanized monoclonal antibody, for patients with refractory or relapsed diffuse large B-cell lymphoma. Hedge fund sentiment around the stock has been relatively stable, with the number of elite smart money shareholders falling by five quarter-over-quarter to 34 as of the latest 13F reporting period.
On the next page, we examine Silicon Graphics International Corp and Del Taco Restaurants Inc.