With the markets once again in the ‘risk on’ mode after two straight days of losses, shares of Relypsa Inc (NASDAQ:RLYP), Acorn International, Inc. (ADR) (NYSE:ATV), Apple Inc. (NASDAQ:AAPL), and Newmont Mining Corp (NYSE:NEM) are leading the way. Given their substantial surges, let’s find out why investors are piling into these stocks.
In addition, let’s also analyze relevant hedge fund sentiment toward the stocks. 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 environment. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has 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).
Leading the way among the gainers is Relypsa Inc (NASDAQ:RLYP), whose stock has gained 16.44% on rumors that Merck & Co., Inc. (NYSE:MRK) is interested in acquiring the company. Relypsa Inc (NASDAQ:RLYP)’s main product candidate, Veltassa, was approved by the FDA in October for the treatment of hyperkalemia. Veltassa is the first new treatment for hyperkalemia in 50 years. ZS Pharma, which was recently acquired by AstraZeneca for $2.7 billion, also has a hyperkalemia treatment that many investors believe will be approved by the FDA. The good news for RLYP is that the market for hyperkalemia will likely number in the billions of dollars annually and ZS-9’s PDUFA date isn’t until May 26, 2016. ZS Pharma’s buyout makes Relypsa a buyout candidate as well, although the rumors haven’t led to anything concrete yet.
Next up is Acorn International, Inc. (ADR) (NYSE:ATV), whose shares have advanced by 18% as the stock remains volatile given the company’s small float. Shares of the company are off by 33% year-to-date, although 2 funds of the 730 funds we track owned approximately $164,000 worth of the company’s shares as of September 30. Given the extreme volatility, we would stay on the sidelines on this one.
On the next page, we examine why Apple and Newmont mining are gaining ground today.