Here’s Why Traders Are Obsessing Over These 5 Stocks Today

It’s a red day on Wall Street, as all three indexes are off by around half a percent due to profit taking. In this article, we’ll take a closer look at five stocks that are in the news, including Praxair, Inc. (NYSE:PX), American International Group Inc (NYSE:AIG), Dicks Sporting Goods Inc (NYSE:DKS), E*TRADE Financial Corp (NASDAQ:ETFC), and Bank of America Corp (NYSE:BAC). In addition to finding out what’s going on with these companies, we’ll use SEC filings to determine what the smart money in our database thinks of each stock.

Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 765 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).

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Praxair Considers M&A

Traders have bid up Praxair, Inc. (NYSE:PX) to the tune of 4.7% today after the Wall Street Journal reported that the company is talking with fellow industrial gas producer Linde over a possible merger. If consummated, the deal would create the world’s largest industrial gas producer and unlock substantial synergies for the shareholders of both companies. Given the size of both companies, there is no guarantee that the deal would get the thumbs up from regulators however, and the talks at this stage could still unravel. Of the 766 13F-filing funds that we track, 31 of them owned $595.28 million worth of Praxair, Inc. (NYSE:PX) holdings on March 31.

AIG Sells Another Non-Core Unit

American International Group Inc (NYSE:AIG) has investors buzzing after the insurer agreed to sell its mortgage guaranty division named United Guaranty to Arch Capital Group for around $3.4 billion. The deal includes consideration of $2.2 billion of cash, $250 million of perpetual preferred stock, and $975 million of newly-issued Arch convertible non-voting, common-equivalent preferred stock. The sale will help AIG further streamline its business. Andreas Halvorsen‘s Viking Global opened a new American International Group Inc (NYSE:AIG) position during the second quarter, owning 3.33 million shares of the company on June 30.

On the next page we’ll check out why Dicks Sporting Goods, E*TRADE, and Bank of America are in the spotlight.

Strong Earnings at Dick’s Sporting Goods

Dicks Sporting Goods Inc (NYSE:DKS) shares have surged by more than 7.2% after the retailer beat both top- and bottom-line estimates with its second quarter results. For the period, Dick’s earned $0.82 per share, beating the consensus estimate of $0.69 per share, while revenue was $1.97 billion, up by 8.2% year-over-year, and $90 million better than the consensus mark. Same-store sales rose by 2.8% year-over-year and guidance was strong, with management raising its full-year EPS outlook to $2.90-to-$3.05 from the previous range of $2.60-to-$2.90. John Lykouretzos‘ Hoplite Capital Management upped its stake in Dicks Sporting Goods Inc (NYSE:DKS) by 222% during the second quarter, to 1.88 million shares.

Interest Rate-Sensitive Stocks Trending on Dudley’s Comments

E*TRADE Financial Corp (NASDAQ:ETFC) and Bank of America Corp (NYSE:BAC) are in the spotlight this morning after Federal Reserve Bank of New York President Bill Dudley said the following in a TV interview:

“We’re edging closer toward the point in time where I think it will be appropriate to raise interest rates further.”

According to the interview, Mr. Dudley doesn’t rule out a September rate hike, which was previously unthinkable after Britain’s decision to leave the EU in June. If interest rates rise, both Bank of America and E*TRADE will benefit from greater NIM margins and higher interest income. 39 hedge funds in our system owned shares of E*TRADE Financial Corp (NASDAQ:ETFC) on March 31, while 110 were long Bank of America Corp (NYSE:BAC).

Disclosure: None