Why Are These Five Stocks Trending Today?

On the first full trading day after Christmas, five stocks, Walt Disney Co (NYSE:DIS), Alibaba Group Holding Ltd (NYSE:BABA), JD.Com Inc (ADR) (NASDAQ:JD), SINA Corp (NASDAQ:SINA), and China Telecom Corporation Limited (ADR) (NYSE:CHA), are trending on the back of various developments. Let’s take a closer look at the catalysts that put these stocks in the spotlight.

Given that Insider Monkey has done a lot of research into what the smart money likes and doesn’t like, let’s also analyze relevant hedge fund sentiment toward these stocks. Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 48.6% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

Walt Disney Co (NYSE:DIS) shares are trending after ‘Star Wars: The Force Awakens’ became the fastest movie to make $1 billion this weekend. According to box office receipts tallied this weekend, the seventh movie in the iconic sci-fi franchise took just 12 days to hit the ten-digit mark, out-pacing “Jurassic World” by one day. In addition, ‘Star Wars’ hasn’t even opened in China yet, meaning there could be some more records that Star Wars will shatter before its run ends. Star War’s box office and merchandise success makes Walt Disney Co (NYSE:DIS)’s purchase of Lucasfilm from George Lucas for $4.05 billion in 2012 look like a steal. Among the 48 elite funds long Disney at the end of September is Ken Fisher’s Fisher Asset Management with a stake of 8.51 million shares.

Speaking of China, Chinese e-commerce companies JD.Com Inc (ADR) (NASDAQ:JD) and SINA Corp (NASDAQ:SINA) are trending after the Shanghai index fell the most in a month, retreating by 2.59% on the day. Because SINA Corp (NASDAQ:SINA) could be a takeover or take-private candidate if the Shanghai index does well, and JD.Com Inc (ADR) (NASDAQ:JD)’s growth depends on how well the Chinese economy does, each stock has been correlated to the Shanghai index’s performance in the past six months. Fortunately for both companies, Monday’s fall is not as alarming as the falls four months ago, and the Chinese government has made it clear that it will inject additional stimulus if the economy needs it. Of the around 730 elite funds we track, 15 funds owned shares SINA Corp (NASDAQ:SINA), while 71 funds were long JD.Com Inc (ADR) (NASDAQ:JD) at the end of the third quarter.

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On the next page, we examine Alibaba and China Telecom Corporation Limited (ADR).

Alibaba Group Holding Ltd (NYSE:BABA) is becoming more and more like a big internet holding company with fingers in many pies after Jack Ma’s company announced it has agreed to invest $1.25 billion in a Chinese online delivery service named Ele.me in exchange for 27.7% of Ele’s float. Given that there are a billion people in China, the potential market size for food delivery is certainly huge, although it remains to be seen whether the segment can be profitable. Despite the internet population being many times bigger than it was during Webvan’s time, the economics of food delivery still include razor thin margins. Hedge fund sentiment towards Alibaba Group Holding Ltd (NYSE:BABA) has been slightly bearish, with the number of elite funds long the stock falling by 25 to 60 quarter over quarter.

The Chinese government’s anti-corruption probe of the private and semi-private sector continues, as China Telecom Corporation Limited (ADR) (NYSE:CHA)‘s Chairman, Chang Xiaobing, is the latest bigwig to be accused of ‘severe disciplinary violations’, a euphemism for corruption. Shares of China Telecom Corporation Limited (ADR) (NYSE:CHA) fell as much as 3% before closing down 1.6% on the Hong Kong stock exchange. Although a management shake-up is usually bad news, removing corrupt executives from their posts will help the company in the long run.

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Disclosure: none