Why Are These Five Stocks Trending Today?

On the first trading day of 2016, McDonald’s Corporation (NYSE:MCD), Netflix, Inc. (NASDAQ:NFLX), Chipotle Mexican Grill, Inc. (NYSE:CMG), Lululemon Athletica inc. (NASDAQ:LULU), and Pandora Media Inc (NYSE:P) are each trending for different reasons. Let’s take a closer look.

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 these stocks. Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 48.6% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

McDonald’s Corporation (NYSE:MCD) shares are trending after the analysts at Nomura upgraded the stock to ‘Buy’ from ‘Neutral’, citing the company’s strong same-restaurant sales rebound and the market expectation that the same-restaurant sales growth will continue. McDonald’s Corporation (NYSE:MCD) shares rallied over 30% in 2015, and still sports an attractive 3% dividend yield. Of the around 730 elite funds we track, 75 funds owned 6.60% of the float on September 30.

Netflix, Inc. (NASDAQ:NFLX) is trending  after analysts at Baird downgraded the stock to ‘Neutral’ from ‘Outperform’, citing symmetrical risk/reward levels in the near term. Last week, the Russian newspaper Izvestia published a column speculating that the internet streaming giant might be preparing to officially launch its services in the country with over 140 million people as early as this month. Netflix, Inc. (NASDAQ:NFLX) has been aggressively expanding into foreign markets and Russia would be a next logical step. Given Netflix’s big 2015 rally, some analysts are beginning to worry about the stock’s valuation in the near term, however. Although they are long term bullish, Andreas Halvorsen’s Viking Global was among 57 elite funds that were long shares of the Internet TV streamer at the end of September.

In other news, Chipotle Mexican Grill, Inc. (NYSE:CMG) shares are down by another 2% after the analysts at Oppenheimer lowered their rating on the Mexican burrito restaurant chain to ‘Perform’ from ‘Outperform’. Partly because of the chain’s food illness troubles in the past few months, the analysts don’t think Chipotle Mexican Grill, Inc. (NYSE:CMG) will meet Wall Street’s earnings per share estimates for 2016 or 2017. Chipotle bulls hope the company’s same store sales can turn around in a few quarters and the company can grow like it once did again. Hedge fund sentiment around Chipotle has been less positive, with the number of elite funds long the stock falling by eight to 28 during the third quarter.

On the next page, we examine Lululemon Athletica, and Pandora Media.

Analysts are becoming more optimistic on Lululemon Athletica inc. (NASDAQ:LULU) today, as Jefferies upgraded the yoga apparel maker to ‘Buy’ from ‘Hold’ and Wells Fargo upped its rating on the stock to ‘Outperform’ from ‘Market Perform’. The analysts at each investment bank think Lululemon Athletica inc. (NASDAQ:LULU)’s fundamentals are getting better and that management will execute well enough for the chain to achieve its profit margin targets.

The analysts at SunTrust are less bullish on Pandora Media Inc (NYSE:P), as they downgraded the stock to ‘Neutral’ from ‘Buy’. The analysts think Pandora’s increased capital investments will cut profits in the short term. The writers at Barron’s are also negative, as they think Pandora Media Inc (NYSE:P) won’t do as well once Spotify and other bigger competitors step up their game. According to our data, 36 elite funds owned 27.60% of the internet radio streamer’s float on September 30.

Disclosure: none