Why Are Investors Piling Into These Five Stocks Today?

With the S&P 500 taking another bath today, down by 1% in morning trading, shares of ReachLocal Inc. (NASDAQ:RLOC), OFG Bancorp (NYSE:OFG), Tronox Ltd (NYSE:TROX), Chemours Co (NYSE:CC), and Sociedad Quimica y Minera de Chile (ADR) (NYSE:SQM) are going the opposite way for various reasons. Let’s find out why investors are bidding up each stock.

Moreover, we will also examine relevant hedge fund sentiment toward these equities. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 36-month period beginning from September 2012 (see the details here).

Shares of ReachLocal Inc. (NASDAQ:RLOC), a leader in online marketing for local businesses, are 53% higher today after the company upped its fourth quarter 2015 Adjusted EBITDA outlook to the range of $2.4 million to $3.0 million from the previous $0.8-$1.4 million range and announced a series of actions to improve its liquidity position and maintain its Adjusted EBITDA growth. Among the actions is ReachLocal entering into a new financing agreement with affiliates of VantagePoint Capital Partners to garner additional liquidity, and the company exiting direct sales in the British market to eliminate unprofitable sales. Six funds among those we track own around 15.9% of ReachLocal Inc. (NASDAQ:RLOC)’s float as of September 30.

OFG Bancorp (NYSE:OFG)’s stock has also gained more than 8% today after the White House called for common sense steps to help Puerto Rico to resolve its debt crisis. White House spokesman Josh Earnest said:

“We certainly are gratified that the speaker has committed to bringing up legislation early in the new year to give Puerto Rico access to an orderly restructuring regime.”

On December 16, Speaker of the House Paul Ryan also said that he has instructed House committees to come up with a solution to the territory’s debt crisis, calling for a plausible plan to be crafted by the end of March. If Puerto Rico can escape its balance sheet recession and grow its economy again, OFG Bancorp can do well. Among the funds we follow, 13 funds owned $30.88 million worth of OFG Bancorp (NYSE:OFG)’s shares at the end of the third quarter.

On the next page, we examine Tronox, Chemours Co, and Sociedad Quimica y Minera de Chile (ADR).

Shares of Tronox Ltd (NYSE:TROX), a leader in the production, mining, and marketing of inorganic chemicals and minerals, are up by 16% after the company announced it will raise the global price for all of its titanium dioxide grades by $150 per metric ton effective January 1, 2016. With the rally today, investors are hoping that Tronox Ltd (NYSE:TROX)’s margins will head North. Given the 14.37% of the float that is on ‘borrow’, short covering could also be playing a part in the rally. A total of 12 funds amassed 9.8% of the company’s outstanding stock as of the end of September.

Perhaps following in Tronox’s footsteps, Chemours Co (NYSE:CC) also announced that its subsidiary, Chemours Titanium Technologies, will increase the global price of all its Ti-Pure titanium dioxide grades by $150 per metric ton as of January 1, 2016. If each supplier raises its prices by the same amount, buyers will have no choice but pay a higher rate. According to our data, 24 smart money investors are long 14.7% of Chemours Co (NYSE:CC)’s float as of the end of the third quarter.

Wrapping up our list is Lithium producer Sociedad Quimica y Minera de Chile (ADR) (NYSE:SQM), whose shares have surged by 9.5% on the news that an indirect shareholder has begun the process of entertaining bids for its holding. Oro Blanco said on Friday that it is considering selling Pampa Calichera, which in turn owns approximately 20% of Sociedad Quimica y Minera de Chile (ADR) (NYSE:SQM). With the rally today, investors are speculating that the indirect sale of a part of SQM would value SQM higher. Paul Singer’s Elliott Management owned 1.97 million shares of the company, according to its latest 13F filing.

Disclosure:None