Investors are witnessing some choppy trading today, as the U.S stock market is trying to maintain its upward trend. Traders are already looking forward to tomorrow’s jobs report and trying to position themselves accordingly. A number of stocks, including Expedia Inc (NASDAQ:EXPE), HomeAway, Inc. (NASDAQ:AWAY), Godaddy Inc (NYSE:GDDY), and SandRidge Energy Inc. (NYSE:SD) have managed to surge higher as the market plunged into the red shorty after the opening bell. Let’s have a look at what has driven them higher this morning.
Online travel company Expedia Inc (NASDAQ:EXPE) has reached an agreement to buy HomeAway, Inc. (NASDAQ:AWAY), the owner of a vacation rental website. Expedia is set to pay $3.9 billion in cash and stock, the equivalent of approximately $37.86 per share, according to the Wall Street Journal, which constitutes an 18% premium over HomeAway’s closing price yesterday. The move is set to strengthen Expedia’s position in the market as it gears up to take on Airbnb. Investors of both companies have hailed the move, with both stocks surging this morning: HomeAway is up by more than 20%, while Expedia is currently up by 3%.
The largest online travel company, Expedia Inc (NASDAQ:EXPE) noted that the deal will negatively impact its earnings next year, but long-term benefits will make up for it. The acquisition of HomeAway is expected to strenghten Expedia’s position in the lucrative apartment and vacation homes market and also reinforce its position in its main market of vacation rentals, where it faces competition from companies like Tripadvisor Inc (NASDAQ:TRIP) and Priceline Group Inc (NASDAQ:PCLN). Expedia has been on a spending spree since the beginning of 2014, having already acquired Travelocity for $280 million and Orbitz Worldwide Inc for $1.3 billion. The latest deal, which is still subject to regulatory approval, is the largest in the history of Expedia and is expected to close at the beginning of 2016.
“We do think we can bring substantial expertise to the HomeAway team. We think we can help them avoid a bunch of the mistakes we’ve made. We are going to help HomeAway accelerate in its transition from a listings model to a booking model,” said Dara Khosrowshahi, Chief Executive Officer of Expedia.
Expedia Inc was a popular stock among the hedge funds that we track as of the end of the second quarter, with the number of funds reporting long positions having increased to 54, from 46 a quarter earlier. Collectively they had ownership of 21% of the company’s common stock. In contrast, only 31 funds were long HomeAway at the end of June, holding 19% of its stock. Robert Pitts‘ Steadfast Capital Management held shares of both companies at the end of the quarter, but was more bullish on HomeAway. During the second quarter Pitts reduced his investment in Expedia by 24% to 2.33 million shares, but initiated a stake in HomeAway, buying as much as 3.07 million shares. Looks like the latter investment will bring him and his investors a hefty near-term profit, while strengthening the former investment.
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 37 month period beginning from September 2012, returning 102% (read the details here).
On the next page we’ll look at the news spurring two other stocks higher in early trading today.