With the S&P 500 above the technical 2,100 level for two straight days, shares of MaxLinear, Inc. (NYSE:MXL), Tesla Motors Inc (NASDAQ:TSLA), CBS Corporation (NYSE:CBS), and Zendesk Inc (NYSE:ZEN) are on the move up as well. Let’s take a closer look at why investors are buying shares of these companies at enhanced prices and examine what the smart money thinks of each stock.
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 have 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. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% over the last 37 months and outperformed the S&P 500 Index by 53 percentage points (see the details here).
MaxLinear, Inc. (NYSE:MXL) is up by 19.73% in morning trading after reporting third quarter earnings of $0.40 per share on revenues of $95.19 million, which were up by a hefty 192.5% year-over-year, which exceeded analysts’ expectations by $0.06 per share and $0.54 million, respectively. GAAP gross margin was 53.6%, down from 61.2% in the third quarter of 2014, but well up from 38% in the second quarter of 2015. Guidance was pretty solid, with management anticipating fourth quarter 2015 revenue of $95 million-to-$100 million, non-GAAP gross margin to be 57.5%, and GAAP gross margin to be 53%. There has been a wave of M&A in recent quarters in the semiconductor industry as the era of cheap debt nears its end, and some investors believe MaxLinear could benefit by participating in the trend as well. Hedge funds are bullish on the company. Of the 730 elite funds we track, 23 funds owned $157.3 million worth of MaxLinear, Inc. (NYSE:MXL)’s shares, which accounted for 33.90% of the float on June 30, with George Soros‘ Soros Fund Management among the bulls, with a holding of 2.6 million shares, up by 240% from the end of March.
Tesla Motors Inc (NASDAQ:TSLA) shares have rallied by 9% this morning after its third quarter results came in better-than-expected. Although Tesla missed analyst expectations, with the company missing earnings estimates by $0.08 per share and revenue estimates for the quarter by $20 million, it did beat the market’s expectation for its vehicle production numbers for 2015. Tesla expects to deliver 50,000-to-52,000 cars this year, down slightly from the 50,000-to-55,000 that management was expecting last quarter, but better than bearish estimates of under 50,000. The solid vehicle guidance numbers for 2015 show that Tesla’s execution is still strong, something that the company will need if it is to be successful in changing the trillion dollar transportation market over the next decade. On another note, progress on Tesla’s gigafactory is ahead of schedule.
26 hedge funds owned $1.39 billion worth of the company’s stock, which represented 4.10% of the float at the end of June, versus 29 funds with stakes worth $1.04 billion a quarter earlier. Famed short-seller Jim Chanos, who is bearish on Tesla, thinks Tesla is a good tech company, but not a good automotive company.
On the next page, we examine why CBS and Zendesk are trending upwards.