Why Are These Five Stocks on the Move Today?

With the broader market down by more than half a percent, shares of International Game Technology Ordinary Shares (NYSE:IGT), Freshpet Inc (NASDAQ:FRPT), Advance Auto Parts, Inc. (NYSE:AAP), MannKind Corporation (NASDAQ:MNKD), and Valeant Pharmaceuticals Intl Inc (NYSE:VRX) are trending. Let’s find out why.

Wall Street Bull

In addition, let’s also take a look at relevant hedge fund sentiment toward the stocks. 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 more details here).

Shares of International Game Technology Ordinary Shares (NYSE:IGT) are rallying after the company’s third quarter EPS beat estimates by $0.10 per share. For the quarter, International Game Technology earned $0.41 per share on revenues of $1.22 billion, with adjusted EBITDA of 414 million and operating income of $130 million.

International Game Technology Ordinary Shares (NYSE:IGT) CFO Alberto Fornaro said:

“Our third quarter results reflect the diversity of our business and disciplined operational management. Our synergy plans remain on track, free cash flow generation was strong, net debt was reduced, and our financial condition remains solid. We planned our first year as a combined company prudently; based on our year-to-date results and current top-line visibility, we are confident in reaching the top half of our 2015 adjusted EBITDA outlook.”

According to our data of around 730 elite funds, 19 funds were long 13.3% of the float at the end of June.

Shares of Freshpet Inc (NASDAQ:FRPT) are off more than 26% in morning trading after the company reported mixed earnings results. Although the company beat revenue estimates by $0.43 million, Freshpet missed earnings expectations by $0.02 per share. Further hurting the stock was soft guidance, with management expecting 2015 net sales of $115.5-$117 million, down from the previous $117-$119.5 million, and 2015 non-GAAP EBITDA to be $10-$11 million, a number substantially lower than management’s previous guidance of $12.5-$14 million. Hedge funds are ambivalent on the stock, as only 6 funds owned $25.17 million of Freshpet Inc (NASDAQ:FRPT) shares on June 30.

On the next page, we examine why Advance Auto Parts, MannKind, and Valeant are on the move.

Advance Auto Parts, Inc. (NYSE:AAP) fell more than 11% in morning trading after the company reported third quarter EPS of $1.95 on revenue of $2.3 billion (up 0.4% year-over-year), missing estimates by $0.14 per share and $30 million, respectively. Comparable stores sales rose 0.5% year-over-year and gross profit margin was 45%, down slightly from third quarter 2014’s gross profit margin of 45.2%. The company also announced CEO Darren Jackson will retire on January 2, 2016.

In better news, the company will add two independent directors to its board, including hedge fund activist Jeffrey Smith. Smith believes Advance Auto Parts, Inc. (NYSE:AAP) is substantially undervalued because it isn’t run as well as it should. Smith notes that similar competitors Autozone, Inc. (NYSE:AZO) and O’Reilly Automotive Inc (NASDAQ:ORLY) have operating margins of around 20%, while Advance Auto Parts has operating margins of 12%. He believes Advance Auto Parts’ operating margins could be just as high as its competitors if management’s execution improves, non-core assets are monetized, and some working capital comes out of the business. Smith has a price target of $360 per share.

On a brighter note, MannKind Corporation (NASDAQ:MNKD) shares surged by over 23% on Thursday after the company confirmed a planned stock sale on the Tel Aviv Stock Exchange on November 15. MannKind Corporation (NASDAQ:MNKD) plans to sell as many as 50 million shares on the exchange to buy the company more time to turn around its poor Afrezza sales. Shares of the company are off by more than 50% year-to-date as sales of the inhaled insulin product have not met expectations.

Last but not least, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) touched a fresh 52-week low today as management’s more impromptu conference call on Tuesday failed to improve sentiment. Investors are still uncertain about Valeant’s relationship with the specialty pharmacy Philidor, and even the bulls such as Bill Ackman’s Pershing Square acknowledge that it could be some time before Valeant shares recover from the debacle. Hurting matters is the news that Valeant and Ackman must face an insider trading lawsuit over the company’s Allergan bid in 2014.

Disclosure: none