Why Are These Hot Stocks Trending on Friday?

American Airlines Group Inc (NASDAQ:AAL), Cabot Oil & Gas Corporation (NYSE:COG), LyondellBasell Industries NV (NYSE:LYB), Whirlpool Corporation (NYSE:WHR) are all trending following the release of their financial results for the last quarter. Let’s take a closer look at the news that put these four stocks in the spotlight.

First a little about ourselves. We are a finance site that monitors smart money activity. 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 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).

American Airlines Group Inc (NASDAQ:AAL) is up 3.8% in pre-market trading after reporting record third quarter earnings of $2.77 per share on revenues of $10.71 billion. Earnings beat expectations by $0.05 per share while revenue was in-line. Third quarter’s GAAP net profit showed an 80% increase from the same period of the last year and the company bought back $1.56 billion worth of common stock, or roughly 38.4 million shares during the quarter. The company’s board also authorized a new $2 billion share repurchase program to be completed by December 2016. Earnings were a record because of lower fuel prices and a strong U.S. economy, along with a good management execution.

Hedge funds are bullish on the stock. Our data show 85 funds (out of the around 730 that we track) owning around 9.2% of American Airline’s float at the end of June. Crude prices will eventually rise for one reason or another, sending jet fuel prices higher, but until that time comes, American Airlines will be using its cash flow to buy back a lot of stock that will increase its EPS and stock price.

Cabot Oil & Gas Corporation (NYSE:COG)’s stock is trending in extended market trading after reporting a third quarter loss of $0.01 per share on revenues of $305.3 million, missing earnings expectations by $0.01 per share and revenue estimates by $50.45 million. Third quarter equivalent production was 142.1 billion cubic feet equivalent, consisting of 1.5 million barrels of liquids and 133 billion cubic feet of natural gas. Liquids production increased by 57% year-over-year, while gas production rose by 5%. EBITDAX (earnings before interest, taxes, depreciation, amortization and exploration expenses) in the third quarter was $167.6 million, down from $325.9 million a year ago, as weak oil and gas prices weighed on the E&P. Management is cutting costs, as they will reduce 2015 capital expenditures to $850 million from the previous $900 million. Guidance is for full year 2015 production growth increase of 12% to 14%. This wasn’t a bad quarter, although shareholders will likely have to wait for crude and natural gas prices to rebound before seeing meaningful returns again.

In the next page, we analyze why LyondellBasell and Whirlpool are up.

LyondellBasell Industries NV (NYSE:LYB) is up 2.6% in pre-market trading after reporting third quarter earnings of $2.80 per share on revenues of $8.33 billion, beating earnings expectations by $0.23 per share but missing revenue estimates by $720 million. EBITDA was $2 billion, while income from continuing operations was $1.2 billion. The company repurchased 15.5 million shares, or around 3.3% of the float.  Management thinks the fourth quarter will reflect ‘a more balanced global ethylene industry’, meaning margins will be slightly better. Management believes industry demand for 2016 will be stable. With a forward P/E of 9.15 and dividend yield of 3.3%, shares are attractive for long term investors.

According to our data, hedge funds were bullish on LyondellBasell Industries NV (NYSE:LYB) in the second quarter. A total of 61 funds reported stakes worth $4.98 billion (representing 10.20% of the float) in the latest round of 13F filings, up from 57 funds and $3.73 billion a quarter earlier. Andreas Halvorsen‘s Viking Global owned 10.73 million shares at the end of June.

Whirlpool Corporation (NYSE:WHR) is trending after the company reported third quarter earnings of $3.45 per share on revenues of $5.28 billion, beating profit estimates by $0.16 per share but missing revenue expectations by $130 million. Revenue missed the estimates because of the strong dollar and weak Latin American sales, while earnings came in higher than expected because management is doing a good job at controlling costs. Gross margin increased by 0.5 percentage points to 17.6% year-over-year, while fiscal year 2015 guidance is for adjusted EPS between $12 – $12.50 and for free cash flow of $600 – $700 million. Whirlpool shares are down 16% year-to-date, but trade at a reasonable forward P/E of 10.64.

Hedge funds were mixed on Whirlpool Corporation (NYSE:WHR) in the time period from March 31 to June 30. Although the number of funds increased to 37 from 36, the total value of their holdings in the stock declined to $1.66 billion (accounting for 12.20%% of the float) from $1.78 billion. Edgar Wachenheim‘s Greenhaven Associates is one of the investors bullish on Whirlpool, holding 2.60 million shares as of the end of September.

Disclosure:none