Why are These Stocks Surging Amid Today’s Gloomy Market?

U.S. stocks are trading mostly lower today, as oil and economic data have put pressure on the market. Sluggish results from major retailers continue to have a negative impact on the market as investors are also digesting the latest economic data related to employment. Some stocks stood out this morning, managing to surge higher despite the gloomy atmosphere in the market. Let’s have a look at what got investors excited about Angie’s List Inc (NASDAQ:ANGI), Sally Beauty Holdings, Inc. (NYSE:SBH), Kohl’s Corporation (NYSE:KSS) and Eros International plc (NYSE:EROS).

Hedge funds have been underperforming the market for a very long time. However, this was mainly because of the huge fees that hedge funds charge as well as the poor performance of their short books. Hedge funds’ long positions performed actually better than the market. Small-cap stocks, activist targets, and spin offs were among the bright spots in hedge funds’ portfolios. For instance, the 15 most popular small-cap stocks among hedge funds outperformed the market by more than 53 percentage points since the end of August 2012 (read the details here). This strategy also managed to beat the market by double digits annually in our back tests covering the 1999-2012 period.

IAC/InterActiveCorp (NASDAQ:IACI) has made an unsolicited bid to acquire Angie’s List Inc (NASDAQ:ANGI) for $512 million in cash, but has also proposed a combination of Angie’s List and its own HomeAdvisor business through a stock-for-stock exchange as an alternative. The offer is the equivalent of $8.75 per share, which constitutes a 10% premium over Angie’s closing price on Wednesday. In a press release Angie’s List has confirmed its willingness to consider the stock-for-stock exchange, but has made no reference to the takeover bid. According to a letter sent to the board of Angie’s List, Joey Levin, CEO of IAC/InterActiveCorp (NASDAQ:IACI), said his company was disappointed by Angie’s refusal to discuss a transaction after a meeting in October. It looks like a takeover deal is not on the cards.

Wallace Weitz is among those who would benefit handsomely from the deal, as Wallace R. Weitz & Co. held 3.59 million shares of Angie’s List at the end of June, the largest investment among the funds we follow. In general, Angie’s List Inc (NASDAQ:ANGI) is not a very popular stock among these funds, as only 14 reported a long position as of the end of June, overseeing 17.7% of the company’s common stock.

Shares of Sally Beauty Holdings, Inc. (NYSE:SBH) have jumped this morning despite mixed financial results for fiscal fourth quarter. The retailer of beauty products has posted revenues of $964 million, topping analysts forecasts of $958 million, while adjusted earnings of $0.38 per share were just shy of the Wall Street’s estimates of $0.39 per share. The company also reported full year figures which are as follows: $3.83 billion in revenues and a profit of $1.49 per share.

At the end of the second quarter, 26 funds we track had Sally Beauty Holdings, Inc. (NYSE:SBH) in their portfolio, holding an aggregate of 10.7% of shares outstanding. Billionaire Ken Griffin is bullish on this stock, having boosted his stake by 89% over the quarter to amass some 3.83 million shares, while Israel Englander had also been buying the stock. Millennium Management reported a 109% increase in its holding of the stock to 2.31 million shares in its latest 13F filing.

Shareholders of Kohl’s Corporation (NYSE:KSS) must be rather pleased as the stock is currently up by roughly 9% following better-than-expected third quarter results on the back of strong back-to-school sales. The operator of specialty department stores has posted a profit of $120 million or $0.75 per share when adjusted for debt servicing costs, beating Street’s estimates of $0.69 per share. Revenue came in at $4.43 billion, above analysts’ estimates of $4.41 billion.

Kohl’s Corporation (NYSE:KSS)’s popularity among hedge funds has decreased a bit during the second quarter, as the number of funds invested fell to 33 from 37 at the end of March, while their holdings accounted for roughly 5% of the company’s outstanding stock. While Clifford Fox was limiting his exposure to the stock during the second quarter, cutting his stake by 9% to 2.49 million shares, Cliff Asness of AQR Capital Management was buying Kohl’s shares left and right, more than doubling his holding to 978,191 shares.

After plunging by more than 31% yesterday, Eros International plc (NYSE:EROS) has regained some ground as the company is fending off allegations of overstating revenues and the number of movies it has distributed in 2014 and 2015. Block & Leviton LLP, a law firm that represents investors, has reacted quickly and has opened an investigation. Since the company failed to comment in a timely fashion, investors drove the shares lower yesterday. The management of Eros came out today and has branded the allegations as “baseless”, insisting they are based on misleading figures issued by the Indian box office. This reaction seems to have soothed investors, as the stock is currently up by approximately 9%.

Eros International plc (NYSE:EROS) moved up the hedge funds’ pecking order during the second quarter, with 14 top funds holding 5% of the company’s common stock. Jim Simons was among those who decided to step up their interest in the company, increasing his stake to 175,900 shares, while David Forster and Peter Wilton, the managers of Ibis Capital Partners chose to trim their stake by 6% to 1.07 million shares.

Disclosure: none.