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.It’s opposite day for 3D Systems Corporation (NYSE:DDD) shareholders, as 3D Systems’ shares are 10.8% in the green at a time when the NASDAQ is 2.8% in the red. Perhaps stoking demand for 3D Systems Corporation (NYSE:DDD) is the news that the company recently introduced the ProX DMP 320, a 3D printer designed for high throughput, high precision direct metal printing. Given that 3D Systems Corporation’s shares fell by 73% in 2015 and that almost a third of the company’s float is short, short covering could also have something to do with today’s rally. A total of 12 funds from our database owned $93.25 million worth of 3D Systems Corporation’s stock at the end of September.

Ascena Retail Group Inc (NASDAQ:ASNA)’s stock has surged by 5% today as investors become more optimistic on the stock’s future. Although the company’s shares lost 21% in 2015, the specialty retailer trades at a reasonable forward P/E of 10.01. The analysts at FBR also recently reiterated their ‘Buy’ rating on the stock. The hedge fund sentiment around Ascena Retail Group Inc (NASDAQ:ASNA) has been stable, with the number of elite funds owning shares of the retailer falling by just two quarter-over-quarter to 23 as of September 30.

There is a short squeeze around Unilife Corp (NASDAQ:UNIS), as shares of the company have rallied over 50% on the news that it has started negotiations with Amgen over a potential licensing deal for Unilife’s wearable injector devices. Under terms of the deal, Amgen will pay Unilife Corp (NASDAQ:UNIS) a non-refundable deposit of $15 million. Four funds among those we track amassed 2.4% of Unilife Corp as of the end of the third quarter.

Disclosure: none