Why Are Shares of These Trending Stocks on the Move?

Shares of International Business Machines Corp. (NYSE:IBM), Comcast Corporation (NASDAQ:CMCSA), Blackstone Group LP (NYSE:BX), Walgreens Boots Alliance Inc (NASDAQ:WBA), and Rite Aid Corporation (NYSE:RAD) are trending this morning due to two looming M&A deals. Let’s take a closer look at the potential deals and analyze relevant hedge fund sentiment toward the stocks.

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In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Insider Monkey looks at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge, not because they are not good at picking stocks on the long side of their portfolios. Hedge funds did in fact manage to outperform the market on the long side of their portfolios. In fact, the 15 most popular small-cap stocks among hedge funds has returned 102% since the end of August 2012, beat the S&P 500 Index by 53 percentage points (see the details here).

The Wall Street Journal is reporting that International Business Machines Corp. (NYSE:IBM) is close to a deal to acquire the data and digital assets of Weather Co, the owner of the Weather Channel, for more than $2 billion. If the deal goes through, the sale will give Weather Co.’s owners Comcast Corporation (NASDAQ:CMCSA) and Blackstone Group LP (NYSE:BX) an exit, although perhaps not a fully profitable one given that they bought the company for a combined $3.5 billion in 2008.

IBM is pursuing the deal because it is interested in Weather Co’s forecasting group, which handles technology and weather data that airlines and insurance companies use. With its artificial intelligence technology and know-how, IBM believes it can improve the unit’s weather forecasts and build new products to help retailers manage supply chains better and help insurers warn their customers of impending disasters. IBM’s Watson and business intelligence unit is still a bright spot for IBM, which has seen its shares fall by 12% year-to-date. 

Hedge funds were mixed on International Business Machines Corp. (NYSE:IBM) in the second quarter. Although the number of funds with holdings in the stock increased to 59 from 53, the total value of their holdings in the stock declined to $14.82 billion (representing 9.30% of the float), from $15.18 billion.  Warren Buffett is a big believer in the company, as his holding company Berkshire Hathaway owned 79.57 million shares of IBM at the end of June, good for 12.07% of Berkshire’s equity portfolio.

While IBM’s share performance has certainly been atrocious compared to the returns of fellow tech giants and the NASDAQ on the whole, the company can still turn it around.  Artificial intelligence and quantum computing will be perhaps the two largest tech markets in the future, and IBM is at the forefront of those fields. At a forward PE of 9.11, IBM is also one of the cheaper big tech stocks on the market today. 

On the next page, we examine why Walgreens Boots Alliance Inc and Rite Aid Corporation are trending.

Shares of Rite Aid Corporation (NYSE:RAD) rallied by 42.6% on Tuesday after Walgreens Boots Alliance Inc (NASDAQ:WBA) announced it will acquire Rite Aid for $9 in cash per share. Walgreens hopes the acquisition will give it more pricing power over drug companies and expand its national footprint. The $17.2 billion deal, which is expected to close in the second half of 2016, will be accretive in the first full year and should yield as much as $1 billion in cost savings.

Hedge funds in our database were bullish on Walgreens Boots Alliance Inc (NASDAQ:WBA) in the second quarter. A total of 81 funds reported stakes worth $9.13 billion (accounting for 9.90% of the float) at the end of June, up from 69 funds and $7.48 billion respectively at the end of March. Hedge funds were also bullish on Rite Aid in the same time period, with 55 funds reporting stakes worth $972.76 million as of the end of June. Among the lucky shareholders of Rite Aid in the second quarter was Larry Robbins‘ Glenview Capital.

Disclosure: None