What’s Going on With These Four Surging Stocks?

With markets flat in the first hours of trading, a number of stocks stand out as Tuesday’s top gainers. Among them, Helix Energy Solutions Group Inc (NYSE:HLX) and Tile Shop Hldgs, Inc. (NASDAQ:TTS) have advanced by 33% and 15%, respectively, after the companies reported their earnings for the third quarter. Dover Corp (NYSE:DOV) is also up on an earnings beat, while Etsy Inc (NASDAQ:ETSY) is surging today on the back of an analyst upgrade. Taking into account that sometimes the market might be overreacting to the news, we think that assessing the hedge fund sentiment towards these four stocks can provide some insight regarding their long-term profitability.

A common opinion is that hedge funds are not worth paying attention to because of their collective underperformance in the last several years. However, their weak returns are mainly caused by their hedging positions, which are expected to underperform in a bull market. On the other hand, by analyzing hedge funds’ long positions alone, we determined that many of their long picks generated strong returns over the long-term. For example, the 15 most popular small-cap stocks among hedge funds are capable of beating the market by double digits per year. Our strategy involves imitating a portfolio of these 15 picks and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by some 53 percentage points (read more details here).

With this in mind, let’s take a closer look at the news that sparked the advancement of the four stocks today and assess the hedge fund sentiment towards them. We will start with Helix Energy Solutions Group Inc (NYSE:HLX), which posted earnings of $0.09 per share for the third quarter, significantly below the $0.71 it earned a year earlier, but better than the $0.08 estimated by analysts. The company’s revenue also fell to $182.46 million from $340.84 million a year earlier as the company is facing an environment of low crude prices. Helix Energy Solutions Group Inc (NYSE:HLX)’s stock surged on the back of the results, but the company is rather unpopular among smart money investors, with only 15 among those that we track reporting positions equal to 7.30% of Helix Energy Solutions Group Inc (NYSE:HLX)’s common stock as of the end of June. Billionaires Ken Griffin of Citadel Investment Group and Israel Englander of Millennium Management are among the top shareholders of Helix Energy Solutions in our database, with stakes of 2.40 million shares and 1.47 million shares respectively. Both investors reduced their stakes during the second quarter.

Tile Shop Hldgs, Inc. (NASDAQ:TTS)‘s stock jumped after the company reported delivering a 15.3% annual growth in net sales to $72.4 million for the third quarter, amid 9.7% comparable-store sales growth. The company also posted non-GAAP EPS of $0.08, significantly above the figure of $0.03 from a year earlier. Nevertheless, among hedge funds from our database, Tile Shop Hldgs, Inc. (NASDAQ:TTS) was an overlooked company, as only ten investors reported stakes amassing 14.70% of the company’s shares in the previous round of 13F filings. Among them, Brett Barakett’s Tremblant Capital had held the largest stake and further increased that position in September to around 6.0 million shares from 4.26 million shares owned at the end of June.

Dover Corp (NYSE:DOV) has gained 8% so far today on the back of third quarter EPS of $1.14 and revenue of $1.8 billion. The company managed to beat the Street’s EPS consensus estimate of $1.07, but fell short of revenue expectations of $1.81 billion. A total of 26 funds from our database held long positions in Dover Corp (NYSE:DOV), representing 5.40% of the float at the end of June, including Ric Dillon‘s Diamond Hill Capital and Jeffrey Gates’ Gates Capital Management, which reported stakes of 2.83 million shares and 2.63 million shares respectively.

Finally, Etsy Inc (NASDAQ:ETSY)‘s shares advanced after an analyst issued an update on the stock, in which it stated that, following its devaluation over the last several months, the stock currently better reflects the company’s risks. Wedbush Securities upgraded the stock to ‘Neutral’ from ‘Underperform’, and has a $9.00 price target on it, which is still below the current price of the stock. Nevertheless, the stock still has an average price target among analysts of over $16 per share, which indicates upside of more than 40%.

Etsy Inc (NASDAQ:ETSY) went public in April and has lost over 60% since then amid growing concerns regarding its business model and news related to the sale of mass manufactured and counterfeit products on its website. Amazon.com, Inc. (NASDAQ:AMZN) recently announced entering into the handmade goods segment as well, which will most likely put more pressure on Etsy Inc (NASDAQ:ETSY), though Wedbush said in its research note that the company will “maintain its revenue growth trajectory” in the third quarter. Despite a lot of noise around its IPO, Etsy Inc (NASDAQ:ETSY) did not manage to capture the attention of hedge funds as only nine funds among those we track reported stakes in the company as of the end of June, equal to around 10% of its outstanding float. Among the funds that were bullish on the company was Chase Coleman’s Tiger Global Management, which initiated a 10 million-share position.

Disclosure: None