Hedge Funds are Bullish on Just One of These Three Upgraded Stocks

AutoZone, Inc. (NYSE:AZO), Twitter Inc (NYSE:TWTR), and Toll Brothers Inc (NYSE:TOL) started Monday on a positive note as their stocks were upgraded by different analysts today, sending their shares up. However, as we will find out using Insider Monkey’s data, hedge funds were bullish on only one of these three firms. Let’s take a closer look at the upgrades and the hedge fund sentiment that surrounds them.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P500 Index by an average of 95 basis points per month (read more details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 118% and beating the market by more than 60 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.

In a report today, Oppenheimer upgraded AutoZone, Inc. (NYSE:AZO)’s rating to ‘Outperform’ from ‘Market Perform’ and raised its price target on the stock to $850 from $740. The stock is currently up 0.76% in early trading. According to Oppenheimer’s Brian Nagel, the almost 15% upside to the stock’s current price comes because of recent management-led initiatives in the firm’s supply chain and inventory areas, which Oppenheimer believes will modestly raise sales, productivity and same-store comparative sales. According to Nagel, they view the company having the business model security and positive late-cycle economic sensitivity that people want in the current market. Overall, eight analysts have a ‘Hold’ rating on the stock, while five rate it as a ‘Buy’ and one as a ‘Strong Buy’. The consensus price target of the stock amounts to slightly above $770.

According to Insider Monkey data, hedge funds were not bullish on AutoZone, Inc. (NYSE:AZO) in the second quarter. This is evidenced by their investment in the firm declining by 20.84% to about $959.53 million, despite just a 2.24% decrease in the stock’s value, making hedge funds own 4.70% of all the company’s shares. There were 36 hedge funds long on the stock by the end of June, up by three from the previous quarter. Iridian Asset Management, led by David Cohen and Harold Levy, owned 227,841 shares of AutoZone at the end of the second quarter.

Twitter Inc (NYSE:TWTR)’s stock is up 1.75%, after Axiom Securities has upgraded ‘Hold’ from ‘Buy’ but reduced its price target to $37 from $40 per share. The new rating from Axiom Securities comes as Twitter has named Jack Dorsey, the site’s co-founder and current CEO of Square, Inc., as the permanent CEO of the company, after former CEO Dick Costolo had stepped down from the helm and it was announced that he would also be leaving the company’s board of directors once a new CEO is named. There are 26 analysts who rate Twitter’s stock as a ‘Hold’, while 16 analysts have a ‘Buy’ rating, and one analyst rates the stock a ‘Strong Buy’. The consensus price target on the stock is just above $41.

Like AutoZone, however, hedge funds are not very fond of Twitter Inc (NYSE:TWTR). At the end of the second quarter, 47 funds from our database were long Twitter, 17 less than a quarter earlier. The value of their stakes fell by by almost 60% during the quarter (partly explained by a 27.68% dip in the stock’s price) to $701 million, equal to some 2.90% of the company at the end of June. Daniel Benton’s Andor Capital Management owned 1.5 million shares of Twitter at the end of June, after having cut his stake by 63% from the preceding quarter.

Meanwhile, Toll Brothers Inc (NYSE:TOL)’s stock is up over 3% after Susquehanna upgraded it to ‘Positive’ from ‘Neutral’. The analyst has a price target of $42 per share, an upside of some 20%. There is one analyst with a ‘Sell’ rating on the stock and nine other analysts have a ‘Hold’ rating and another eight rate the stock as a ‘Buy’. The consensus price target on the stock is nearly $40.

The funds from our database held 8.50% of Toll Brothers’ outstanding stock at the end of June, the value of their positions amounting to $569.85 million, up by 6.95% on the quarter, despite an almost 3% dip of the stock during the period. There were 33 hedge funds in our database long Toll Brothers on June 30, up by three from March 31. Ken Heebner’s Capital Growth Management owned 6.3 million shares of Toll Brothers at the end of June.

Disclosure: None