Why Are These Stocks Surging?

At a time when the S&P is roughly flat, shares of Weight Watchers International, Inc. (NYSE:WTW), Cempra Inc (NASDAQ:CEMP), Diebold Inc (NYSE:DBD), Windstream Holdings, Inc. (NASDAQ:WIN), and SanDisk Corporation (NASDAQ:SNDK) are surging. Let’s take a closer look at the upside catalysts and analyze smart money sentiment towards them.

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 more than 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 56% 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).

Weight Watchers International, Inc. (NYSE:WTW) surged an astounding 87.6% after the company agreed to sell 6,362,103 shares to Oprah Winfrey at $6.79 per share in exchange for Winfrey granting the company the right to use (subject to her approval) her name, likeness, image, and endorsement for and in connection with Weight Watchers and its products. Weight Watchers also gave Winfrey a fully vested option to purchase 3,513,468 shares of common stock at $6.97 a piece. Oprah is a favorite among American consumers, and her approval of Weight Watchers will increase demand for the company’s products. Winfrey said:

Weight Watchers has given me the tools to begin to make the lasting shift that I and so many of us who are struggling with weight have longed for. I believe in the program so much I decided to invest in the company and partner in its evolution.

Some short covering is also likely playing a part in today’s rally, as 27.5% of Weight Watchers International’s float is short.

Cempra Inc (NASDAQ:CEMP) is up by 4% after being down by 7% in early morning trading as investors debate the implications of the company’s phase 3 clinical trial results for solithromycin. Solithromycin is Cempra’s potential treatment for community acquired bacterial pneumonia. The phase 3 clinical trials showed non-inferiority to moxifloxacin, but also showed higher side effects. Shares are down by 17% year-to-date.

Diebold Inc (NYSE:DBD) rallied 6.7% after the ATM manufacturer offered to acquire Wincor Nixdorf for 52.50 euros per share. Investors think there will be significant pricing power and cost synergies in the deal, as shares of both companies are up substantially. The merger between the two will create the world’s largest maker of ATM machines with around $6 billion in sales and approximately 35% of market share of the ATM market. An acquisition of Wincor will also diversify Diebold’s revenue base from the United States. Of the around 730 elite funds we track, 15 funds owned $343.1 million of the company’s shares (representing 15.10% of the float) on June 30, versus 20 funds and $415.68 million on March 31.

In the next page, we analyze why Windstream Holdings and SanDisk shares are up.

Windstream Holdings, Inc. (NASDAQ:WIN), a leading provider of network communications, is up 5.8% after the company announced it will sell its data center business to TierPoint for $575 million in cash. Windstream’s data center business generated $30.5 million in revenue and $10.2 million in adjusted OIBDA in the 3 months ended in June 30, 2015. The two companies will cross promote each other’s products so Windstream can ‘focus capital on its core telecom offerings while continuing to offer traditional data center services to enterprise customers across a broader data center footprint’. Windstream stock is up as investors like the increased focus and the sale price.

SanDisk Corporation (NASDAQ:SNDK) is up 3.76% after BusinessKorea published a report stating ‘there is fierce competition between global semiconductor companies to buy SanDisk’. According to the article, although Samsung has reached the conclusion that buying SanDisk won’t generate enough profits, ‘Samsung is keeping a close eye on the unfolding situation’. There has been a huge wave of M&A in the computer parts industry as the era of cheap debt comes to an end and companies merge to survive the personal computer’s secular decline. The news of ‘fierce competition’ for the company is always good. The more potential buyers or ‘companies keeping an eye on the situation’, the better.

Disclosure:none