U.S. stock have extended losses into the second day, fueled by a wave of disappointing earnings reports and the prospect of a rate hike in December. There is, however, a host of stocks that have not followed the herd and are actually surging this morning. Let’s find out why D.R. Horton, Inc. (NYSE:DHI), Beazer Homes USA, Inc. (NYSE:BZH), Wayfair Inc (NYSE:W) and Rackspace Hosting, Inc. (NYSE:RAX) are trending higher today.
Hedge funds and other big money managers tend to have the largest amounts of their capital invested in large and mega-cap stocks like Apple Inc. (NASDAQ:AAPL) because these companies allow for much greater capital allocation. That’s why, if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 102%, beating the broader market by over 53 percentage points through the end of October (see the details).
There’s a positive outlook for D.R. Horton, Inc. (NYSE:DHI) after its fiscal fourth quarter report showed a 44% increase in profits. For the three months ending September 30, 2015, the homebuilding company reported revenues of $3.17 billion, above market expectations of $3.05 billion, and a profit of $0.64 per share versus analysts expectations of $0.62 per share. Full year figures are as follows: $10.82 billion in revenues and earnings of $2.03 per share. Shares opened up higher this morning and have surged by as much as 5.7% during the first hour of trading.
D.R. Horton, Inc. (NYSE:DHI) is among the hedge fund’s favorites, according to our database, as 42 funds held a long position in this company at the end of the second quarter. Together they had control over 13.4% of the common stock and their positions were valued at roughly $1.34 billion. Ken Heebner of Capital Growth Management is betting big on the homebuilding company, with his fund holding 9.07 million shares at the end of June. Billionaire Ken Griffin also held a sizable position, but had decided to reduce it by 17%. In its latest 13F filing, Citadel Investment Group reported ownership of 7.3 million shares of D.R. Horton.
Another homebuilding company has made headlines today following better-than-expected earnings in the fiscal fourth quarter of 2015. Beazer Homes USA, Inc. (NYSE:BZH) reported today revenues of $632.9 million, up by nearly 16% year-over-year, and earnings of $0.97 per share. Analyst estimates called for a profit of $0.89 per share on $650 million in revenue. During the first hour of trading the stock has shot up by nearly 5% before cooling off and heading into red territory.
Although only 18 elite funds were invested in Beazer Homes USA, Inc. (NYSE:BZH) at the end of June, they held more than 35% of the company’s common stock. Ken Griffin was invested in this stock as well, holding the largest stake among the funds we follow at the end of the second quarter. Citadel Investment Group reportedly held 1.68 million shares, down by 26% during the quarter. Jim Simons‘ mathematical methods indicated Beazer Homes was a ‘Buy’, as his fund, Renaissance Technologies, had boosted its stake by 38% to 621,120 shares.
Shareholders of Wayfair Inc (NYSE:W) now have more reasons to be happy with their investment decision, as the company’s latest financial report shows things are heading in the right direction. With the stock up by 219% so far this year, investors have rejoiced at news that the company managed to narrow its losses for the third consecutive quarter. Wayfair registered revenues of $594 million, beating estimates of $522 million, and a loss of $0.13 per share, when adjusted for one-time gains and costs. The company’s active customer base grew by 61% year-over-year, a good sign ahead of the holiday season.
Wayfair Inc (NYSE:W) is not very popular among the funds we follow, as 13 hedge funds held just 5% of the company’s common stock at the end of June. George Soros‘ fund, Soros Fund Management, was among the investors that sought to reduce exposure to the stock, cutting their stake by 39% to 247,663 shares. Eric Bannasch, on the other hand, decided it was a good time to invest in Wayfair, building a position that amassed 897,293 shares by the end of the second quarter.
Shares of Rackspace Hosting, Inc. (NYSE:RAX) have jumped by as much as 15% during the first our of trading, as the troubled cloud-computing company posted better than expected financial results. Revenues came in at $508 million and the company registered a profit of $0.26 per share, exceeding expectations of $503 million in revenue and earnings of $0.20 per share. Following a failed attempt to sell itself, the company has been struggling to grow, as it decided to implement a change in its business model and has been focusing more on the managed cloud market.
During the second quarter, Rackspace Hosting, Inc. (NYSE:RAX)’s appeal to elite funds had cooled down a bit, as the number of funds invested in the company fell to 37 from 39 at the end of March. Their combined holding was valued at $1.19 billion and accounted for 22.6% of outstanding shares. Rackspace Hosting was on Barry Rosenstein‘s shopping list for the second quarter, with JANA Partners reporting an 84% increase in its holding of the stock to 11 million shares in its latest 13F filing.