The Wednesday morning trading session is in full gear and shares of Chicago Bridge & Iron Company N.V. (NYSE:CBI), Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT), Verisk Analytics, Inc. (NASDAQ:VRSK), and American International Group Inc (NYSE:AIG) are on the move, one of them due to the involvement of a prominent activist investor tracked by our team. Let’s find out why these stocks are trending and see if hedge funds disagree with the market on any of them.
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, Insider Monkey looks at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge, not because they are not good at picking stocks on the long side of their portfolios. Hedge funds did in fact manage to outperform the market on the long side of their portfolios. In fact, the 15 most popular small-cap stocks among hedge funds has returned 102% since the end of August 2012, beat the S&P 500 Index by 53 percentage points (see the details here).
Shares of Chicago Bridge & Iron Company N.V. (NYSE:CBI) have rallied by 15.4% in morning trading after the company announced that it will sell its nuclear construction business to Westinghouse Electric for $229 million in cash. CB&I anticipates incurring a non-cash after tax charge of $1.0 billion-to-$1.2 billion due to the impairment of goodwill among other factors. In conjunction with the news of the deal, CB&I also released its preliminary third quarter results, in which the company expects to realize revenues of $3.3 billion and adjusted net income per share of $1.54 per share. Hedge funds are bullish on CB&I. 26 funds of the 730 or so elite funds we track reported stakes worth $1.11 billion in the company, accounting for 20.40% of the float, at the end of June, down slightly from 28 funds with $1.24 billion in shares at the end of March. Warren Buffett‘s Berkshire Hathaway owned 9.33 million shares of Chicago Bridge & Iron Company N.V. (NYSE:CBI) at the end of June.
Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) is up by 6.2% today after the hotel chain reported third quarter earnings of $0.74 per share on revenues of $1.43 billion, beating earnings estimates by $0.02 per share but missing revenue expectations by $10 million. Management fees, franchise fees, and other fees rose by 3.1% year-over-year while worldwide systemwide REVPAR for same-store hotels declined by 0.3% in actual dollars and increased by 5.4% in constant dollars year-over-year. Investors could be buying the stock because CNBC is reporting that Hyatt Hotels Corporation (NYSE:H) is in talks to buy Starwood Hotels in a cash-and-stock deal. According to the CNBC source, ‘a deal could be announced within the next week or two’. A merger would give the combined company more pricing power over its luxury hotel customers. Hedge funds agree with the market on Starwood. As of the end of the second quarter, 62 funds in our database reported stakes worth $3.94 billion in the hotel chain amounting to 28.40% of its outstanding shares, up from 61 funds holding $3.14 billion worth of stock at the end of the first quarter.
On the next page, we examine why AIG and Verisk Analytics are trending.