Why Are These Five Stocks Surging Today?

All three indexes are in either in the green or relatively flat on Tuesday and leading the gainers are five stocks: Argos Therapeutics Inc (NASDAQ:ARGS), American Midstream Partners LP (NYSE:AMID), Oneok Partners LP (NYSE:OKS), Plains GP Holdings LP (NYSE:PAGP), and Peabody Energy Corporation (NYSE:BTU), each of which are rallying for different reasons. Let’s take a closer look at why investors are buying.

Given that Insider Monkey has done a lot of research into what the smart money likes and doesn’t like, let’s also analyze 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 the details here).

Argos Therapeutics Inc (NASDAQ:ARGS) shares have rocketed by 26% higher in afternoon trading on technical buying. Because shares have been badly beaten up year-to-date, some short investors are taking some profits as the tax year and fourth quarter comes to a close. Throw in the company’s relative illiquidity (the stock has an average 3 month daily volume of around 58,000 shares) and today’s rally makes a lot more sense. Of the around 730 elite funds we track, one fund owned around 0.7% of Argos Therapeutics Inc (NASDAQ:ARGS)’s float on September 30.

American Midstream Partners LP (NYSE:AMID) surged for the second day in a row after ArcLight Capital Partners announced that it might buy up to $75 million of American Midstream Partners’ shares beginning today. ArcLight controls the general partner of American Midstream Partners LP and is contemplating buying shares because the fund feels America Midstream Partners’ stock is undervalued in relation to its assets. Seeing as American Midstream Partners LP (NYSE:AMID)’s market cap is only $190 million, a purchase of $75 million would definitely make a big difference in the stock (although there is no guarantee that ArcLight will buy anywhere close to $75 million). Shares of American Midstream Partners are up 25% so far today.

On the next page, we examine Oneok Partners LP, Plains GP Holdings LP, and Peabody Energy Corporation.

The bulls are piling into Oneok Partners LP (NYSE:OKS) again, as its stock continues to rally after yesterday’s disclosure that Oneok expects to maintain its current dividend distribution and achieve distribution coverage of 1x or higher next year. In addition, management expects to sustain the company’s investment grade rating and not dilute shares for capital raising purposes next year. The status quo is music to the bull’s ears, as it means Oneok Partners LP (NYSE:OKS)’s dividend yield of nearly 10% is safe. Shares of the natural gas processor and transporter now trade North of $30 per share after trading for $22 a share a week ago.

Not to be left out, Plains GP Holdings LP (NYSE:PAGP), which owns an interest in the incentive distribution rights and general partner of Plains All American Pipeline, L.P. (NYSE:PAA), is also up 13.19% today. Investors are buying because the entire midstream sector is well in the green today as WTI forward month contracts rally and as energy infrastructure investors become more optimistic after Oneok Partners LP (NYSE:OKS) announced it will maintain its dividend, credit rating, and share count. Hedge funds have become more optimistic on Plains GP Holdings LP (NYSE:PAGP), with the number of elite funds long the stock rising by four quarter-over-quarter to 27 at the end of September.

Peabody Energy Corporation (NYSE:BTU) is trying to put in a rally of sorts, with shares up 14.44% today, on the hopes that the coal producer will successfully restructure some of its debt under favorable terms. Peabody has around $6.3 billion in debt, with $1.5 billion due in 2018, and could use some relief given the brutal energy climate as low natural gas prices have absolutely destroyed demand for thermal coal. Cliff Asness’ AQR Capital Management owned 2.11 million Peabody Energy Corporation (NYSE:BTU) shares at the end of September.

Disclosure: none