Why Are These Stocks Surging Today?

It’s been a great day for the shareholders of UTi Worldwide Inc. (NASDAQ:UTIW), Horsehead Holding Corp. (NASDAQ:ZINC), and Teck Resources Ltd (USA) (NYSE:TCK), as the value of their equities have surged 47.6%, 26.2%, and 6.16%, respectively, in early morning trade. UTi Worldwide shares are up after the company’s board accepted DSV’s offer to acquire the logistics company for $7.10 a share, while Horsehead Holding Corp and Teck Resources shares are up as base metal commodity prices surge on Friday. Let’s take a closer look at the upside catalysts and see what hedge funds think of the stocks. At the end, we will reveal the smart money’s top pick among the three trending stocks based on SEC filing data.

In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, hedge fund experts at Insider Monkey look at the aristocrats of this group, around 700 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds lagged the market in recent years because of their short positions as well as the huge fees that they charge, while they managed to outperform the market on the long side of their portfolios. In fact, the 15 most popular small-cap stocks among hedge funds have returned 102% during the 3 years since the end of August 2012 and beaten the S&P 500 Index by some 53 percentage points (see more details here).

Before today’s news, UTi Worldwide Inc. (NASDAQ:UTIW) shares were down 60% year to date as the company struggled to turn a profit amid the strong dollar and weak macro economic backdrop. The company consistently missed earnings and revenue expectations because it lacked economies of scale. By selling itself to DSV, the world’s sixth largest shipping company, management will be partially salvaging shareholder value and helping DSV become bigger. This is the end of the road for UTi Worldwide shareholders however, as DSV is paying straight cash for the deal rather than stock.

The share price of base metals miners Horsehead Holding Corp. (NASDAQ:ZINC), and Teck Resources Ltd (USA) (NYSE:TCK) are surging after commodities giant Glencore announced it will cut its annual production of zinc by a third. Glencore’s cuts mean 4% of global zinc production will vanish in the coming months. Some investors think Glencore might cut copper production further too given the futures price of zinc is up 9.1% and the futures price of copper is up 3.8%. If copper and zinc prices surge further, the rally in the two beaten up commodity names will continue.

In the next page, we examine what the smart money thinks of the three stocks.

Hedge funds are bullish on UTi Worldwide Inc. (NASDAQ:UTIW). The total value of their holdings in the stock increased to $363.06 million (representing 34.30% of the float) at the end of June up from $355.66 million at the end of March, while the total number of elite funds long the stock stayed more or less constant at 14, down 1 from the previous quarter. Claus Moller‘s P2 Capital Partners owns 11.27 million shares, good for 17.87% of the portfolio.

Hedge funds are optimistic on Horsehead Holding Corp. (NASDAQ:ZINC). 15 funds were long $172 million (representing 25.90% of the float) of the stock in the second quarter, nearly unchanged from 15 funds and $179.54 million in the first quarter. Famed value investor Mohnish Pabrai, who many investors think is the Indian Warren Buffett, owns 6.33 million shares, good for 15.63% of his portfolio. Hedge funds think the zinc producer is very well run, has a wide moat given its cost advantages and long term contracts, and is highly levered towards inflation. Shares haven’t done very well this year as zinc prices are off substantially due to a weakening Chinese economy, but Horsehead Holding has a book value of $8.48 per share and analysts think the company will be profitable next year.

Hedge funds from our database increased their positions in Teck Resources in the second quarter. Of the around 730 elite funds we track, 15 funds owned $97.69 million worth of the company’s shares (representing 1.70% of the float) at the end of June, versus 12 funds and $35.33 million on March 31. Jonathan Barrett And Paul Segal’s Liminus Management established a new position of 4.75 million shares, while Ray Dalio‘s Bridgewater Associates trimmed its stake by 6% to 262,400 shares.

Of the three names, hedge funds are most optimistic on Horsehead Holding Corp going forward.

Disclosure: None