Why Are These Stocks Surging Today?

It’s Thursday and shareholders of BofI Holding, Inc. (NASDAQ:BOFI), and Five Prime Therapeutics Inc (NASDAQ:FPRX) are certainly happy as the value of their stakes in those stocks has soared by 17% and 52.79% respectively in early morning trading. Sentiment is improving around Bank of the Internet, while Five Prime Therapeutics recently announced a big deal with Bristol-Myers Squibb Co (NYSE:BMY). Given the relative strength of the three equities, let’s take a closer look, and if applicable, analyze any relevant hedge fund sentiment toward the three stocks.

Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 102% over the last 37 months and outperformed the S&P 500 ETF (SPY) by 53 percentage points (see more details here).

BofI Holding, Inc. (NASDAQ:BOFI) is up after management hosted a conference call on Wednesday evening in response to a New York Times article reporting that a former auditor of the bank said the company was cutting corners and was perhaps engaged in wrongdoing. The former auditor hinted that the bank’s borrowers “may have included foreign nationals who might be off-limits under federal anti-money-laundering laws.” Many investors sold first and asked questions later on Wednesday and Bank of the Internet’s stock fell by around 30%. It seems last night’s investor conference answered some questions and soothed some concerns. In addition, several analysts defended the bank, including analysts at FBR Capital, who reiterated their ‘Outperform’ rating and $132 price target. The analysts at FBR Capital think the recent pullback is a significant buying opportunity, although the uncertainty clearly isn’t over yet.

Five Prime Therapeutics Inc (NASDAQ:FPRX) is up after announcing a favorable deal with Bristol-Myers Squibb Co (NYSE:BMY) concerning the development of the company’s colony stimulating factor 1 receptor antibody program (FPA008) in combination with nivolumab and other therapies. Five Prime is entitled to receive up to $1.74 billion for FPA008, with a $350 million upfront payment and over $1 billion in development and milestone payments. The company is also entitled to double-digit royalties on future sales and has the option to co-promote in the United States.

On the next page, we’ll analyze hedge fund sentiment towards Five Prime and Bristol-Myers Squibb.

According to our data culled from the filings of 730 elite funds, said funds were bullish on Five Prime Therapeutics Inc (NASDAQ:FPRX) in the second quarter. A total of 17 funds reported stakes worth $145.33 million, and owned 22.80% of the comany’s float as of June 30, up from 17 funds with $133.67 million in shares a quarter earlier. Among the lucky hedge fund holders of Five Prime are Phill Gross and Robert Atchinson’s Adage Capital Management, which owns 1.96 million shares, and Steve Cohen‘s Point72 Asset Management, which owns 479,411 shares. Israel Englander’s Millennium Management is long 473,569 shares.

Hedge funds were ambivalent towards Bristol-Myers Squibb Co (NYSE:BMY) in the second quarter. 48 funds owned $2.2 billion worth of Bristol-Myers Squibb’s shares, or roughly 2% of the float, at the end of the second quarter. The total number of funds long the stock declined by seven and the total value of their holdings declined by $80 million from the end of the first quarter. Samuel Isaly’s Orbimed Advisors cut its holding by 13% to 7.75 million shares while Phill Gross and Robert Atchinson’s Adage Capital Management trimmed its holdings by 29% to 5.07 million shares.

Disclosure: None