With NASDAQ futures up by 0.7% and crude futures bouncing back from the $30 per barrel level, Microsoft Corporation (NASDAQ:MSFT), QUALCOMM, Inc. (NASDAQ:QCOM), Yum! Brands, Inc. (NYSE:YUM), and Aeropostale Inc (NYSE:ARO) are each on the move this morning. Let’s take a closer look at the catalysts causing the extra volatility in these stocks and examine what the world’s greatest investors think of them.
Why do we pay attention to hedge fund sentiment? 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 market. 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 (see the details here).
Microsoft Corporation (NASDAQ:MSFT) is trending as the secular decline of the PC continues. According to new data released by market research firm IDC, worldwide PC shipments came in at 71.9 million units in the fourth-quarter of 2015, down by 10.6% year-over-year. That’s a tad worse than the 10.4% year-over-year shrinkage in PC shipments for all of 2015. Despite the gloomy data, analysts are optimistic about a future market turn. IDC Vice President Loren Loverde said:
“The PC market remains competitive and the economic environment weakened further with the recent drop in the Chinese stock market. However, PC replacements should pick up again in 2016, particularly later in the year. Commercial adoption of Windows 10 is expected to accelerate, and consumer buying should also stabilize by the second half of the year. Most PC users have delayed an upgrade, but can only maintain this for so long before facing security and performance issues. We continue to believe that a majority of these users will purchase another PC, motivated by new products and attractive pricing.”
Partly because of the optimism, Microsoft Corporation (NASDAQ:MSFT) shares are almost 2% higher in morning trading today. According to our data, the smart money continues to like Microsoft, as the number of elite funds owning shares of the company rose by six to 113 during the third quarter.
QUALCOMM, Inc. (NASDAQ:QCOM) is almost 3% in the green today after the mobile chip giant announced it is partnering up with Japanese firm TDK Corp to form a Singapore-based joint venture named RF360 Holdings, which will produce components for radio-frequency chips used in robotics, cars, drones, and handsets. Qualcomm will spend $1.2 billion on the effort and will own 51% of the new company. It will also have the option to acquire TDK’s shares at a later date. By teaming up with TDK, QUALCOMM, Inc. (NASDAQ:QCOM) will be optimizing its research costs and increasing its growth potential. Qualcomm management expects the investment to add to non-GAAP EPS within 12 months after the deal closes. The market for electronic components that convert radio waves into signals that semiconductors can use is expected to grow by an average of 13% a year to $18 billion by 2020.
On the next page, we examine why Yum! Brands Inc and Aeropostale Inc are also making waves today.