Why Are These Five Stocks in Focus on Tuesday?

With the earnings season in progress, investors can take a step back from following macroeconomic news and focus on the financial results reported by individual companies. On Tuesday, before the opening bell, several behemoths reported their earnings and provided outlooks for the near future, including Alibaba Group Holding Ltd (NYSE:BABA), E I Du Pont De Nemours And Co (NYSE:DD), and Merck & Co., Inc. (NYSE:MRK). Let’s take a closer look at their results and see if the smart money sentiment suggests these companies will keep the same momentum in the long-term.

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At Insider Monkey we follow the activity of over 700 hedge funds and analyze their filings with the Securities and Exchange Commission in order to identify their collective opinion on several thousand stocks. The main reason we do this is because we believe that in this way, we can identify profitable investment opportunities, since hedge funds usually employ complex and detailed analysis when choosing stocks and are focused on the long-term performance rather than short-term movements. Our strategy involves only the 15 most popular small-cap picks among the funds we track and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by around 53 percentage points (see more details here).

Alibaba Group Holding Ltd (NYSE:BABA)‘s stock jumped by over 8% in pre-market and has extended those gains after the opening bell on the back of its financial report. The stock is still down by 20% year-to-date amid economic issues in China, but the results that came above estimates encouraged investors that Alibaba may be down, but is certainly not out. The company posted sales of $3.38 billion, up by 32% on the year, and above estimates of $3.35 billion. Its net income per share also went up by an annual 30% to $0.57 and was above estimates of $0.52. An important metric that investors and analysts watch closely while assessing Alibaba’s performance is Gross Merchandise Volume (GMV), which increased by 28% on the year to $112 billion. Strong results delivered by Alibaba also dragged Yahoo! Inc. (NASDAQ:YHOO)‘s stock nearly 6% higher, since the company owns a 15% stake in Alibaba, which represents a significant portion of its value, thus its stock follows the same trend as Alibaba’s.

As we stated earlier, Alibaba Group Holding Ltd (NYSE:BABA) represents a good long-term investment, since it is the largest e-commerce company in China and its sales will increase even more amid the expected growth of the country’s economy. Many smart money investors share the same opinion, as a total of 85 funds from our database reported long stakes in the company as of the end of June. In the current round of 13F filings covering the third quarter, billionaire Ken Fisher‘s Fisher Asset Management reported ownership of 2.03 million shares of Alibaba, having added 719,477 shares between July and September. Yahoo! Inc. (NASDAQ:YHOO) is even more popular among the funds from our database, since 104 investors reported positions representing 16% of the company at the end of June. Mario Gabelli’s GAMCO Investors is one of Yahoo! Inc. (NASDAQ:YHOO)’s shareholders, owning 653,440 shares as of the end of September.

E I Du Pont De Nemours And Co (NYSE:DD)‘s shares declined slightly in pre-market, but have recovered in the first minutes of trading and are currently less than 1% in the green. The company posted earnings of $0.13 per share for the third quarter of 2015, significantly down from $0.39 per share earned a year earlier, but above estimates of $0.10. Its revenue also slid to $4.97 billion from $6.27 billion in the same period last year and came in below expectations of $5.31 billion. The company cited the strong dollar, and a challenging agricultural market in Brazil, as being among the main reasons for the declines in sales and earnings. At the end of June, 46 funds from our database held long positions in Du Pont, representing 4.10% of its outstanding stock. One of the funds bullish on E I Du Pont De Nemours And Co (NYSE:DD) is GAMCO Investors, which holds 33,580 shares of Du Pont as of the end of September.

On the following page we will discuss two healthcare companies, Merck & Co., Inc. (NYSE:MRK) and Baxter International Inc (NYSE:BAX) that have reported their earnings earlier today.

Merck & Co., Inc. (NYSE:MRK)‘s stock has gained around 2% so far today on the back of its earnings report. During the third quarter, the pharmaceutical giant delivered a 7% annual growth in adjusted EPS to $0.96, although its sales inched down by 5% to $10.07 billion. Analysts anticipated the company to post EPS of $0.92 on revenue of $10.08 billion. In addition, Merck & Co raised its full-year earnings outlook, with it currently expecting to deliver non-GAAP EPS between $3.55 and $3.60. A total of 71 funds from our database held stakes in Merck at the end of June, while in the current 13F round of filings, Fisher Asset Management disclosed holding 6.76 million shares.

Baxter International Inc (NYSE:BAX) has also reported quarterly results, for the first time since the spin-off of Baxalta Inc (NYSE:BXLT). The company delivered adjusted earnings of $0.41 per share, slightly below the $0.44 per share it reported a year earlier, but better than the $0.29 expected by analysts and significantly above the high end of its previously forecasted range of $0.29-to-$0.31. Its sales, however, declined by 8% on the year to $2.50 billion, versus estimates of $2.46 billion. The company said that foreign exchange negatively affected its sales in the third quarter. During the second quarter, the number of funds bullish on Baxter International Inc (NYSE:BAX) fell by 11 to 39.

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