Why Tesla, SolarCity, Adobe, and Two Other Stocks Are Trending Today

The markets are relatively calm on the day before the Brexit vote. All three index futures are near flat, and crude futures are well in the green on the back of solid API numbers yesterday.

In this article, we take a closer look at five stocks traders are buzzing about, Tesla Motors Inc (NASDAQ:TSLA), SolarCity Corp (NASDAQ:SCTY), Adobe Systems Incorporated (NASDAQ:ADBE), Covenant Transportation Group, Inc. (NASDAQ:CVTI), and FedEx Corporation (NYSE:FDX), and analyze how the elite funds are positioned towards them.

Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 700 hedge funds, whose quarterly 13F filings we analyze and determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (see the details here).

A Musk Marriage Proposal 

Tesla Motors Inc (NASDAQ:TSLA) made a bid to acquire SolarCity Corp (NASDAQ:SCTY) in an all-stock deal, offering 0.122 to 0.131 Tesla shares for each share of the solar panel installer. SolarCity shares have soared by 17% in the pre-market on the back of the news, while Tesla shares didn’t do as well, retreating by 10%. Because the proposed transaction is all stock, the merger will likely not affect the cash positions of either company. Some traders sold Tesla shares off because they questioned SolarCity’s business model and NAV assumptions, while other traders sold due to the conglomerate discount. If the merger goes through, it remains to be seen how laser-focused Musk and his team will be in achieving Tesla’s stated goal of producing half a million vehicles a year by 2018. The integration problems could make it more difficult to achieve the ambitious goal. On the other hand, the merger between the two could be a great win, as the combination of the two could form a dominant renewable energy company in EVs, solar panels, and batteries if given the right execution. A total of 39 funds from our database were long Tesla Motors Inc (NASDAQ:TSLA) and 23 funds held shares of SolarCity Corp (NASDAQ:SCTY) at the end of the first quarter.

On the next page, we find out why Adobe Systems Incorporated, Covenant Transportation Group, and FedEx Corporation are in the spotlight.
Adobe Drops on Earnings

Adobe Systems Incorporated (NASDAQ:ADBE) shares are 5% in the red in pre-market after the tech company reported fiscal second quarter earnings of $0.71 per share on revenue of $1.4 billion, beating the consensus estimates by $0.03 per share on the bottom-line and meeting revenue estimates. One reason for the stock drop could be Adobe’s guidance. Adobe management sees third quarter revenue coming in at $1.42-$1.47 billion versus analyst estimates of $1.47 billion. For the full year, Adobe expects EPS of $2.80 versus analyst estimates of $2.84 per share. The company also expects full year revenue of $5.8 billion, which is slightly lower than the consensus of $5.83 billion. At the end of March, 63 funds tracked by us were long Adobe Systems Incorporated (NASDAQ:ADBE), up by 17 funds from the previous quarter.

Covenant Trims Guidance

Covenant Transportation Group, Inc. (NASDAQ:CVTI) became the second trucking company to lower guidance, with Covenant management expecting EPS of $0.17-$0.23 for the second quarter, versus the company’s earlier expectation of $0.28-$0.33 per share. The company cited difficult freight market conditions, higher net fuel cost per mile, and higher deprecation expenses as reasons for the guidance cut. Yesterday, Werner Enterprises, Inc. (NASDAQ:WERN) also cut its guidance due to similar factors plus labor wage difficulties. Eight funds tracked by us amassed $43.48 million worth of Covenant Transportation Group, Inc. (NASDAQ:CVTI)’s stock, which accounted for 9.90% of the float on March 31, versus 13 funds and $37.56 million, respectively, on December 31.

FedEx Reports Earnings

FedEx Corporation (NYSE:FDX) reported earnings of $3.30 per share on revenue of $13 billion for its fiscal fourth quarter, exceeding the consensus by $0.02 per share and $220 million. Operating margin rose 120 basis points to 11.7%, while the company’s express segment reported an operating income of $757 million. Management sees fiscal 2017 EPS coming in the range of $11.75 to $12.25, which neatly envelops the average analyst estimate of $12.05 per share. For full fiscal 2016, the company earned $10.80 in adjusted diluted EPS on revenue of $50.4 billion.  45 elite funds had a bullish position in FedEx Corporation (NYSE:FDX) at the end of March, down by two from the previous quarter.

Disclosure: none