Why Are These Four Stocks in the Spotlights Today?

Shares of Twitter Inc (NYSE:TWTR), Advanced Micro Devices, Inc. (NASDAQ:AMD), Covenant Transportation Group, Inc. (NASDAQ:CVTI), and XenoPort, Inc. (NASDAQ:XNPT) are trending for various reasons in Friday intraday trading session. Given the strong trading volumes of each stock, let’s take a closer look at the underlying catalysts that affect their movement, and, if relevant, see what the smart money thinks of the four companies.

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. However, we have determined 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 ETF (SPY) by more than 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 56% gain for the SPY (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).

Twitter Inc (NYSE:TWTR) advanced by 3.5% after former Microsoft CEO Steve Ballmer tweeted that he had bought 4% of the social media company in the last few months. Ballmer’s purchase follows Saudi Prince Alwaleed Bin Talal’s disclosure that he upped his position to 5.2% of the float (see details). Investors are buying Twitter because it has great potential and the new CEO Jack Dorsey is controlling costs. As one of his first steps, Dorsey will lay off a meaningful percentage of Twitter employees and halt the company’s San Francisco headquarter expansion. Investors hope Dorsey can innovate and do a good job in both Twitter and Square, where he is also the CEO.

Our database that contains around 730 elite funds show that hedge funds were for the most part underweight the company in the second quarter. The total number of hedge funds long Twitter Inc (NYSE:TWTR) declined to 47 from 64 between April and June, while the aggregate value of their holdings fell to $701 million, representing 2.9% of the float, from $1.75 billion held at the end of March. Daniel Benton’s Andor Capital Management cut its long position by 63% on the quarter to 1.5 million shares.

Advanced Micro Devices, Inc. (NASDAQ:AMD) is down by 3.8% after missing earnings estimates by $0.05 per share for the third quarter. Fourth quarter guidance was a bit disappointing as well, with management expecting a 10% sequential revenue drop, versus analyst estimates of 6%. The personal computer’s continued secular decline along with Intel Corporation (NASDAQ:INTC)’s dominance is weighing on the company, although Advanced Micro Devices did announce a new joint venture with Nantong Fujitsu Microelectronics Co in a deal that gives AMD more cash and allows the management to sharpen AMD’s focus on designing high-performance products.

Let’s see why Covenant and XenoPort shares are up on the following page.

Covenant Transportation Group, Inc. (NASDAQ:CVTI)’s stock jumped by 11.6%, after reporting better than expected earnings. For its third quarter, the company earned $0.42 per share on revenues of $173.51 million, versus estimates of $0.41 and $180.24 million respectively. Average freight revenue per loaded mile increased 3.3% year-over-year to $1.816 while total tractors count increased by 122 to 2,721. Management didn’t provide its guidance for the fourth quarter, but said that they expect higher volumes of committed capacity. The company’s Shares look reasonably cheap, with forward P/E below 10, but investors should pay close attention to labor costs in the future, as the U.S. economy nears almost full employment. There is currently a shortage of qualified truckers that could get worse over time.

XenoPort, Inc. (NASDAQ:XNPT) gained 10.22% as sentiment around the stock improves. XenoPort received some bad news in September from a study concerning its potential psoriasis treatment XP23829 in which nearly a third of trial subjects prematurely dropped out due to gastrointestinal-related side effects. The good news is the drug met its primary endpoint in terms of efficacy. The market has been vacillating on XP23829’s prospects ever since, although its shares have rallied in recent weeks as the optimists think there will still be healthy demand if the drug is approved.

Of the around 730 elite funds we track, 16 funds owned $106.8 million of the company’s shares (representing 27.80% of the float) on June 30, including Julian Baker and Felix Baker‘s Baker Bros Advisors, which reported ownership of 6.51 million shares, followed by Samuel Isaly’s Orbimed Advisors with 5.77 million shares.

Disclosure: none