U.S stocks are trading slightly lower this morning, as investors warily eye lower oil prices and a continued strengthening of the dollar. While the broader market is in the red, there are several stocks that are trading higher on the back of earnings reports and merger talks. Let’s find out why investors are pushing KB Home (NYSE:KBH), Office Depot Inc (NASDAQ:ODP), Staples, Inc. (NASDAQ:SPLS), TiVo Inc. (NASDAQ:TIVO), and General Steel Holdings Inc (NYSE:GSI) higher this morning.
Our backtests showed that the 15 most popular small-cap stocks among hedge funds managed to generate a monthly alpha of 81 basis points, versus an alpha of 0.7 percentage points posted by their top 50 large-cap picks (see more details here).
Shares of KB Home (NYSE:KBH) are trending higher this morning after the release of the company’s first quarter financial results for fiscal year 2016. The custom home builder reported a 17% surge in revenue to $678.4 million and a profit of $0.14 per share, topping Wall Street estimates of $0.11 per share and $632.9 million in revenue. KB Home also reported higher margins and a 5% increase in average selling prices. U.S new home sales rose in February, reaching an annual pace of 512,000 units, a sign that the economy is still growing despite troubles abroad. Billionaire Ken Fisher is bullish on KB Home (NYSE:KBH), having increased his investment by 2% during the fourth quarter, giving him ownership of 3.59 million shares. Steven Cohen, on the other hand, chose to reduce his exposure to the stock, having dumped 40% of his position. In its latest 13F filing, Cohen’s Point72 Asset Management indicated ownership of 1.72 million shares of KB Home.
Could the merger between Office Depot Inc (NASDAQ:ODP) and Staples, Inc. (NASDAQ:SPLS) be back on? Staples had reached a deal to acquire Office Depot for $6.3 billion or $11 per share back in February 2015, but in December the Federal Trade Commission voted to block the deal, claiming it was “likely to eliminate beneficial competition that large companies rely on to reduce the costs of office supplies.” The two companies have recently challenged the decision in court, claiming that there are other companies, like Amazon.com, Inc. (NASDAQ:AMZN) for instance, that have plans to enter the market and which would provide healthy competition to a merged entity. The FTC, on the other hand, claims that despite new entrants, major corporations continue to buy office supplies from Office Depot and Staples. During the testimony of Prentis Wilson, an Amazon executive, behind closed doors, it was alleged that the FTC had sought to influence one of his prior testimonies. Mr. Wilson said the FTC tried to have him sign a declaration that contained statements he did not believe to be true. Mr. Wilson also said that Amazon’s supply business has not reached the maturity to allow them to sign contracts with major companies, thus supporting the FTC’s argument that a merger between Office Depot and Staples would be illegal.
Hedge fund sentiment towards Office Depot Inc (NASDAQ:ODP) was roughly unchanged at the end of the fourth quarter, with the number of long positions in the stock held by funds in our database inching down to 46 by the end of December. Paul Singer is still betting on the stock, having increased his stake by 49% to 13.2 million shares. Joshua Friedman and Mitchell Julis’ Canyon Capital Advisors also holds a sizable position, but reported a 7% reduction in its stake during the fourth quarter, to 13.1 million shares at the end of December.
Meanwhile, roughly 17% of Staples, Inc. (NASDAQ:SPLS) common stock was held by 49 elite hedge funds in our system on December 31, down from 54 a quarter earlier. While some hedge fund managers were bailing out, Richard S. Pzena was buying the stock left and right. His fund, Pzena Investment Management indicated ownership of 33.3 million shares in its latest 13F filing, up by 31% over the quarter. Ross Margolies’ fund, Stelliam Investment Management holds a position that amounts to 12.3 million shares, up by 27% from the third quarter.
Turn the page for all the details about two more of the biggest gainers today.