Why Are These Stocks Surging Today?

It’s certainly a good Thursday for the shareholders of Pandora Media Inc (NYSE:P), Sunedison Inc (NYSE:SUNE), Avon Products, Inc. (NYSE:AVP), and Weibo Corp (ADR) (NASDAQ:WB). Not only is Star Wars coming out for most people around the world, but the value of their holdings in each stock is also substantially higher. Let’s find out why.

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).

Pandora Media Inc (NYSE:P) received some certainty yesterday when the Copyright Royalty Board issued the following concerning its future royalty rates:

“The rate for commercial subscription services in 2016 is $0.0022 per-performance. The rate for commercial nonsubscription services in 2016 is $0.0017 per-performance. The rates for the period 2017 through 2020 for both subscription and nonsubscription services shall be adjusted to reflect the increases or decreases, if any, in the general price level, as measured by the Consumer Price Index applicable to that rate year, as set forth in the regulations adopted by the Judges’ determination.”

Although the commercial non-subscription 2016 rate of $0.0017 is a little higher than 2015’s rate of $0.0014, it’s lower than what many market participants expected and shares of Pandora have jumped by over 20% in morning trading as a consequence. Among the winners are 36 funds from out database that amassed 27.6% of Pandora Media Inc (NYSE:P)’s float as of September 30. If management executes well, the company can be profitable next year, although Pandora will still have to deal with increasing competition in the sector.

Sunedison Inc (NYSE:SUNE) shares are up by another 3% in morning trading as the short squeeze continues. Over 37% of Sunedison’s shares was on borrow two weeks ago, and the recent spate of good news concerning the company, including the news that Blackstone is willing to be a major holder in the stock, and the news that the investment tax credit (ITC) will be extended to 2019, has prompted some bears to cover, leading to a rush of buying as shorts take profits and short term traders buy on momentum. If Sunedison shares stabilize and go on an upward trajectory again, the company can once-again access growth capital at reasonable cost and the stock will have considerable long term upside. If there are skeletons in the closet that shareholders don’t know about (such as management reclassifying non-recourse debt into recourse debt), look for shares to retreat once more.

According to our database, 73 funds owned over 46% of Sunedison Inc (NYSE:SUNE)’s float at the end of the third quarter, with David Einhorn’s Greenlight Capital among them.

On the next page, we examine Avon Products Inc, and Weibo Corp (ADR).

Shares of Avon Products, Inc. (NYSE:AVP) have surged by 7% after the company announced that it has formed a $605 million Strategic Partnership with Cerberus Capital Management. Under the terms of the partnership, Cerberus will invest $435 million in Avon Products in the form of convertible perpetual preferred stock with a conversion price of $5 per share and in exchange for a dividend that accrues at a rate of 5% per year. In addition, Avon Products will spin off Avon North America and Cerberus will purchase 80.1% of the spun-off unit for $170 million. Avon Products, Inc. (NYSE:AVP) also announced that it will suspend its dividend effective the first quarter of 2016 as part of its strategic restructuring. Shares of the company are off more than 50% year-to-date, but have rallied strongly from their mid-November lows.

Wrapping up our list of gainers today is Weibo Corp (ADR) (NASDAQ:WB), whose shares are up nearly 3% in morning trading after the analysts at Morgan Stanley upgraded the stock to ‘Overweight’ from ‘Equal Weight’. Weibo Corp (ADR) (NASDAQ:WB) benefits from rising internet penetration in China, as well as an increasingly affluent Chinese middle class. Many investors have also speculated that the ‘Chinese Twitter’ could be a takeover target for sprawling internet conglomerates such as Alibaba Group Holding Ltd (NYSE:BABA). If the Chinese economy recovers, look for Weibo to do well.

Disclosure:None