After a huge decline on Friday, a big rebound on Monday, and another sharp drop on Tuesday, it is safe to say that volatility is officially back just in time for September, which is usually one of the more volatile months historically.
In addition to the market’s volatility, investors’ interest is also being captured today by Tesla Motors Inc (NASDAQ:TSLA), SolarCity Corp (NASDAQ:SCTY), B&G Foods, Inc. (NYSE:BGS), Wal-Mart Stores, Inc. (NYSE:WMT), and Wells Fargo & Co (NYSE:WFC). Let’s dive in and analyze why these stocks are generating buzz and see how the smart money was positioned in them at the end of the second quarter based on the latest 13F data.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).
Tesla Motors Inc (NASDAQ:TSLA) and SolarCity Corp (NASDAQ:SCTY) are back in the headlines today after famed short seller Jim Chanos called the prospective merger between the two “the height of folly” and “crazy”. Chanos is particularly bearish on SolarCity, calling the company’s business model “just plain uneconomic.” He estimates that the combined entity would burn around $1 billion in cash per quarter if the merger went through. Chanos isn’t a fan of the companies’ corporate governance either and cites Tesla’s unwillingness to provide SolarCity with bridge financing despite the fact that their merger is pending.
In addition, Tesla could also be facing stiffer competition in the electric vehicle mass market segment in the near-term, courtesy of General Motors Company (NYSE:GM)’s Chevy Bolt, which goes 238 miles on a single charge, a number that might be greater than what the Model 3 will offer. Despite Chanos’ comments, some hedge fund managers are still fans of the two companies. Among the funds in our database, 26 had a long position in SolarCity Corp (NASDAQ:SCTY) on June 30, while 36 were long Tesla Motors Inc (NASDAQ:TSLA).
Traders are talking about B&G Foods, Inc. (NYSE:BGS) today after Reuters reported that the company is in talks to buy the maker of Mazola cooking oil, ACH Food Companiies Inc, from Associated British Foods Plc. Analysts think the division could be sold for as much as $300 million-to-$400 million. Although the two companies are in talks, there is no guarantee that the deal will be completed. Ric Dillon‘s Diamond Hill Capital inched up its holding in B&G Foods, Inc. (NYSE:BGS) by 1% during the second quarter, to almost 2.4 million shares as of June 30.
On the next page, we’ll examine why Wal-Mart and Wells Fargo are in the spotlight this morning.
In the age of Tesla’s autopilot and Uber’s self-driving cars, Wal-Mart Stores, Inc. (NYSE:WMT) is joining the autonomous revolution with potential plans for an autonomous cart. According to CNN, the retailer was recently awarded a patent from the U.S. government for carts that have sensors, video cameras, and motors that might enable it to be autonomous. Experts speculate that Wal-Mart might eventually use the autonomous carts to better manage inventory and to help return abandoned carts back to the store (and save on labor costs). 58 funds in our system had a long position in Wal-Mart Stores, Inc. (NYSE:WMT) at the end of June, up by four funds from the end of March.
In relation to the recent revelation that some of its former employees had purportedly created over 2 million fake customer accounts to juice numbers, Wells Fargo & Co (NYSE:WFC) is back in the spotlight after its CEO, John Stumpf, placed the blame more on the employees who committed those shady acts rather than the company’s culture or systems. Wells Fargo has since fired over 5,300 employees associated with those practices. Stumpf said:
“I wish it would be zero but if they’re not going to do the thing that we ask them to do—put customers first, honor our vision and values—I don’t want them here. I really don’t.”
Stumpf also added that the bank as a whole did not have incentive to do those things. While he accepted responsibly for the crisis, he also stated that he will not resign. To prevent future occurrences and to hopefully quell the rising political controversy over the issue, Wells Fargo has curbed some cross-selling practices and will eliminate product sales targets in its retail banking segment beginning next year. 88 funds tracked by Insider Monkey were long Wells Fargo & Co (NYSE:WFC) at the end of June.