It’s the first Thursday of December and the markets are on edge in anticipation of a Federal Reserve interest rate hike and OPEC’s December 4th meeting. Among the trending securities today are Prima BioMed Ltd (ADR) (NASDAQ:PBMD), Avago Technologies Ltd (NASDAQ:AVGO), Broadcom Corporation (NASDAQ:BRCM), Itau Unibanco Holding SA (ADR) (NYSE:ITUB), and Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR) as investors buy each stock for various reasons. Let’s find out why.
In addition, let’s also analyze relevant hedge fund sentiment toward the stocks. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 36 month period beginning from September 2012 (see the details here).
First up, Prima BioMed Ltd (ADR) (NASDAQ:PBMD) is up almost 26% in early morning trading after the analysts at FBR Capital initiated an ‘Outperform’ rating with a $6 price target on the stock. Prima BioMed’s lead product candidate, IMP321, is in phase 2 clinical trails in metastatic breast cancer when used as chemo-immunotherapy. None of the funds from our database own shares of Prima BioMed, according to the latest round of 13F filings. During the third quarter, Jim Simons’ Renaissance Technologies and Ken Griffin’s Citadel Investment Group unloaded their stakes, which previously contained 38,850 shares and 31,439 shares respectively.
Next up is semiconductor consolidator Avago Technologies Ltd (NASDAQ:AVGO), whose stock has rallied 8.84% after the company reported fourth quarter EPS of $2.51 on revenue of $1.85 billion, beating profit estimates by $0.13 per share and meeting revenue expectations. Avago’s revenue rose by 14.9% year-over-year, while its gross margin inched up 1.0 percentage points to 62%. For fiscal year 2015, AVGO reported net revenue from continuing operations of $6.824 billion, up by 60% year-over-year, and GAAP EPS of $4.85, more than quadruple the last year’s figure of $0.99. Management expects first quarter of fiscal 2016 revenue to be between $1.76 billion and $1.81 billion, slightly below analyst expectations of $1.82 billion. Among the 66 hedge funds long Avago Technologies Ltd (NASDAQ:AVGO) at the end of the third quarter is Dan Loeb’s Third Point with a holding of 1.65 million shares.
Not to be left out, Broadcom Corporation (NASDAQ:BRCM) shares have rallied nearly 5% because AVGO is up. Avago agreed to buy Broadcom in May for $37 billion in a cash-and-stock deal. Shareholders of Broadcom can elect to receive 0.4378 shares of Avago or $54.50 in cash for each share of BRCM they own, or a combination of the both, with cash and stock consideration limited to 50% of the transaction.
On the next page, we examine why Itau Unibanco Holding SA and Petrobras are surging.
In other news, Itau Unibanco Holding SA (ADR) (NYSE:ITUB) and Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR) are up 6% and 2%, respectively, as investors become more optimistic on Brazil’s macroeconomic future after the country’s legislative branch launched impeachment proceedings against Brazilian President Dilma Rousseff. Due to a combination of weak commodity prices, a struggling Chinese economy, and normalizing U.S. interest rates, Brazil’s economy is in its worst economic slump since the Great Depression. Any sort of political change that might lead to more growth orientated policies would be welcome news for investors. Additionally, look for Petrobras shares to remain volatile as OPEC meets on Friday. A meaningful cut in production will send shares surging while the status quo might send shares lower.
According to our data, 18 elite funds were long Itau Unibanco Holding SA (ADR) (NYSE:ITUB) at the end of September while 24 funds were long Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR) at the end of the third quarter.