Why Are These Five Stocks Rallying on Monday?

With almost all of the S&P 500 in the red because of Shanghai’s big 7% sell-off, shares of Smith & Wesson Holding Corp (NASDAQ:SWHC), Sunedison Inc (NYSE:SUNE), 3D Systems Corporation (NYSE:DDD), Ascena Retail Group Inc (NASDAQ:ASNA), and Unilife Corp (NASDAQ:UNIS) are going the opposite way. Let’s find out why investors are piling into these stocks.

Moreover, we will also examine relevant hedge fund sentiment toward these equities. In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds in operation at present, Hedge fund experts at Insider Monkey look at 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. 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 (see the details here).

Smith & Wesson Holding Corp (NASDAQ:SWHC) shares are 5.55% in the green as investors speculate potentially tougher background checks and reporting requirements could ramp up demand for guns in the short term. Political analysts believe President Obama could take an executive actions to tighten gun controls as early as this week. If gun purchasing rules become tougher, more people will buy guns before the rules come into effect and Smith & Wesson Holding Corp (NASDAQ:SWHC)’s earnings could be better than expected because of it. Hedge funds have become more bullish on Smith & Wesson, as the number of elite funds long the stock increased by eight to 30 during the third quarter.

Sunedison Inc (NYSE:SUNE) has rallied by 4.9% as the stock remains volatile due to the 39% of shares that are short and the spate of good news hitting the news wires as of late. Sunedison Inc (NYSE:SUNE) management has been slowly increasing liquidity with the renewable energy producer most recently announcing that it will convert $336 million of debt due 2020 to a mixture of TerraForm Power shares and renewable energy project stakes. David Einhorn’s Greenlight Capital and Larry Robbins’ Glenview Capital were among the 73 elite funds (out of a total of around 730) that were long Sunedison as of September 30.

On the next page, we examine 3D Systems Corporation, Ascena Retail Group, and Unilife Corp.