Why Are Investors Piling Into These Stocks?

While all three indexes may be firmly in the red, shares of Trina Solar Limited (ADR) (NYSE:TSL), TerraForm Power Inc (NASDAQ:TERP), NephroGenex Inc (NASDAQ:NRX), and Anavex Life Sciences Corp. (NASDAQ:AVXL) are well in the green. Let’s find out why investors are buying the four equities.

In addition, let’s analyze hedge fund sentiment toward the stocks, if relevant. 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).

Leading off, shares of solar producer Trina Solar Limited (ADR) (NYSE:TSL) have surged by 10.26% on the news that Trina’s founder and CEO, Jifan Gao along with a third party investment group wants to take the company private. In a preliminary and non-binding proposal, Gao and Shanghai Xingsheng Equity Investment & Management Co., Ltd are offering to acquire all shares that they don’t own for $11.6 in cash per ADS. That’s roughly 10% higher than Trina’s current stock price.  Trina Solar Limited (ADR) (NYSE:TSL)’s board is currently reviewing the proposal. Given that the Shanghai index has stabilized, Trina’s CEO could probably make some money by taking the company private and later listing it on a Chinese stock exchange once the IPO process thaws. Among the winners in the today’s surge are 16 elite funds from our database that owned around 31% of Trina’s float at the end of the third quarter.

Trina Solar isn’t the only renewable energy winner, as shares of the yieldco TerraForm Power Inc (NASDAQ:TERP) have also jumped by 7.63% today. Investors are becoming less fearful on TerraForm Power Inc (NASDAQ:TERP) after Sunedison amended its Vivint Solar Inc (NYSE:VSLR) acquisition with Blackstone last week. Under the terms of the new deal, SunEdison will pay $2.00 less in cash per share and $0.75 more in stock per share in a move that will make Blackstone a major holder in the company and also potentially reduce TerraForm Power’s cash payment obligation by around $236 million. Although TerraForm Power still has a long way to go if it is to gain the market’s trust again, shares of TerraForm pay an attractive 11.96% dividend yield. Moreover, a total of 31 funds we track held shares of the company at the end of September, including David Tepper’s Appaloosa Management, who is long 7.6 million class A shares.

On the next page, we examine Anavex Life Sciences Corp. and NephroGenex Inc.

Anavex Life Sciences Corp. (NASDAQ:AVXL) shares are up by 11.6% as investors become more optimistic on the company’s prospects. Anavex Life Sciences Corp. (NASDAQ:AVXL) is a a clinical-stage biotech company that develops drug candidates to treat Alzheimer’s disease, other central nervous system (CNS) diseases, various types of cancer, and pain. Anavex’s lead drug candidates, ANAVEX 2-73 and ANAVEX PLUS, the combination of donepezil and ANAVEX 2-73, are currently in a Phase 2a clinical trial for Alzheimer’s disease, a condition that has affected more than 25 million people.

Like Anavex Life Sciences Corp, NephroGenex Inc (NASDAQ:NRX) is also doing well today, with shares of the biotech company up more than 68% on the news that the FDA has given the green light for the company’s Investigational New Drug application for its intravenous Pyridorin (pyridoxamine dihydrochoride) drug candidate for the treatment of acute kidney injury. Acute kidney injury causes around 2 million deaths each year world-wide. Given the many quarters of additional clinical testing needed, shares of NephroGenex Inc (NASDAQ:NRX) could also be up because of short covering. Around 2.4% of the float is short and the stock isn’t exactly very liquid.

Disclosure: none