Shareholders of Vale SA (ADR) (NYSE:VALE), Oclaro, Inc. (NASDAQ:OCLR), Weatherford International Plc (NYSE:WFT), and Citrix Systems, Inc. (NASDAQ:CTXS) are certainly pleased today, as the value of their shares is surging in late morning trading. Let’s take a closer look at what has investors willing to buy shares of these companies at expanded prices today.
First a little about Insider Monkey. We’re a finance site that tracks the sentiment of a select group of elite investment firms. 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, we look at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research has shown that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge, not their long positions. Indeed, hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points during that time (see the details here).
Vale SA (ADR) (NYSE:VALE) is up by 4.66% today after the company reported a net loss of $2.117 billion on revenues of $6.618 billion for its third quarter. Net debt fell by $2.3 billion while cash cost FOB port per metric ton for iron ore ex-royalties was $12.70/t versus $15.70/t in the second quarter. Vale’s cash costs are still one of the lowest in the industry, although the iron ore market hasn’t turned around as oversupply and a weak Chinese economy continues to weigh it down. The weak Brazilian real is also a negative, as is Brazil’s own macro-economic problems. Although it is unclear when producers will meaningfully begin cutting back production, we believe they eventually will. Glencore recently announced that it would cut its base metals production due to the glut, and it may be only a matter of time before other iron producers decide the same thing. Given Vale SA (ADR) (NYSE:VALE)’s low price-to-book ratio, buy and hold isn’t a bad strategy.
Oclaro, Inc. (NASDAQ:OCLR) jumped by 17.92% this morning after the tech company pre-announced its first quarter of fiscal 2016 earnings results. For the quarter, Oclaro, Inc. (NASDAQ:OCLR) expects revenue of $87.5 million, gross margin of 26%-to-27%, and adjusted EBITDA of $4.0 million-to-$4.5 million, up from the previous guidance of $82 million-to-$88 million, 18%-to-22% gross margin, and negative $3 million-to-break-even in adjusted EBITDA. Oclaro, Inc.’s results were better than expected because of better revenue mix due to strong demand for the company’s 100G, 10G, and 40G products. Shares of the stock are up by 57% year-to-date.
Hedge funds are divided on Oclaro. A total of 13 of the 730 elite funds that we track reported stakes in the company worth $27.73 million (representing 11.20% of the float) in the previous round of 13F filings, up from eight funds and $20.3 million respectively a quarter earlier. 14.4% of the float is short. Don Morgan‘s Brigade Capital owns 3 million shares.
On the next page, we examine why shares of Weatherford and Citrix Systems are up.
Weatherford International Plc (NYSE:WFT) is up by 9.78% after the oil services company reported a net loss of $0.05 per share on revenues of $2.24 billion, beating analyst expectations by $0.06 per share, but missing estimates by $80 million. Revenue was weaker-than-expected due to the strong dollar and weak crude prices. Management is controlling costs, as they announced the company will layoff another 3,000 employees by year’s end. Given the recent mergers in the industry, some investors wonder if Weatherford International Plc (NYSE:WFT) should just sell itself or merge with another oil services company to unlock shareholder value. Although shares are down by 12% year-to-date, we think Weatherford’s shares are a good long-term holding. Crude prices can’t stay low forever, and oil services demand will increase once crude prices normalize.
Shares of Citrix Systems, Inc. (NASDAQ:CTXS) have rallied by 11% today after the company reported third quarter earnings of $1.04 per share on revenues of $113.3 million, beating estimates by $0.20 and $27.28 million respectively. Guidance is strong, with management expecting 2015 revenue of $3.24 billion-to-$3.25 billion and EPS of $3.85-to-$3.90 versus estimates of $3.23 billion in revenue and $3.71 in EPS. Apparently, Paul Singer of Elliott Management’s request that management pay more attention to costs is working, as the company’s expenses as a percentage of total revenues is trending lower. Elliot Management would be happier if management leveraged its balance sheet more to repurchase more shares but for now the stock is heading in the right direction. Elliot Management believes Citrix Systems, Inc. (NASDAQ:CTXS) could trade for $90.00-to-$103.75 per share by the end of 2016.