With the S&P 500 and Dow Jones roughly flat for the day, shares of Apple Inc. (NASDAQ:AAPL), Wal-Mart Stores, Inc. (NYSE:WMT), and Walt Disney Co (NYSE:DIS) are trending for various reasons. Let’s analyze why.
First a little bit about ourselves. Insider Monkey is a finance website that monitors 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 have 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 34 months and outperformed the S&P 500 Index by 53 percentage points (see more details here).
Apple Inc. (NASDAQ:AAPL) is trending after CEO Tim Cook said there will be ‘massive change’ coming to the auto industry in the coming years. Vehicles are increasingly becoming more autonomous as various companies have made significant inroads in self-driving technology. Alphabet/Google has self driving (golf cart-like) cars while Tesla’s vehicles have recently received an update that allows “autopilot” driving. Ride sharing apps such as Uber are increasing the utilization rate of vehicles, while various internet and smartphone technologies are making the car more connected. Experts believe Apple is likely working on a smart car that could come onto the market as early as the end of the decade. For a company Apple’s size, smart cars are one of the rare product categories that could still move the needle and unlock shareholder value.
Many hedge funds own Apple. According to our extensive database of around 730 hedge funds, Apple is the second most popular holding, with 144 funds owning $21.27 billion of the company’s shares as of the end of June. Carl Icahn‘s Icahn Capital LP owns 52.76 million shares, which represent around 21% of his equity portfolio.
Wal-Mart Stores, Inc. (NYSE:WMT) is trending after the FTC closed a deceptive advertising probe of the company after Wal-Mart agreed to drop the ‘Made in USA’ logo on some products that weren’t 100% made in the U.S. Wal-Mart has since relabeled its ‘Made in USA’ logos to better show how much of the product was made in the U.S. and how much was made overseas. Wal-Mart shares are down 30% year-to-date as its sales and earnings growth weaken and expenses rise. Shares now trade at a discount 13.8 times forward earnings and yield 3.34%.
The smart money is underweight Wal-Mart. During the second quarter, the number of funds with long positions among over 700 that we track went up by two to 65, while the aggregate value of their holdings slightly fell to $8.52 billion from $9.21 billion. Warren Buffett‘s Berkshire Hathaway is Wal-Mart’s largest shareholder with 60.39 million shares, while Bill & Melinda Gates Foundation Trust, managed by Michael Larson, is the second-largest shareholder with 11.6 million shares shares.
On the next page, we examine why Walt Disney is trending.