Why Are These Stocks Trending Today?

With the S&P futures in the red again as weak crude prices weigh on sentiment, shares of Dow Chemical Co (NYSE:DOW), E I Du Pont De Nemours And Co (NYSE:DD), Finisar Corporation (NASDAQ:FNSR), Adobe Systems Incorporated (NASDAQ:ADBE), abd United Development Funding IV (NASDAQ:UDF) are trending for various reasons. Let’s take a closer look.

Let’s also examine relevant hedge fund sentiment toward the stocks. In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 730 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points (see the details here).

Leading off on our list are Dow Chemical Co (NYSE:DOW) and E I Du Pont De Nemours And Co (NYSE:DD). After days or rumors, the two chemical companies have confirmed that they will merge in an all-stock transaction to form a combined company called DowDuPont. Within 18-24 months after the deal closes, the parties intend to pursue a separation into three independent, publicly-traded companies through tax-free spin offs that would enhance focus. The synergies in the deal are expected to be as much as $3 billion within 2 years after the deal closes. Dow CEO Andrew N. Liveris said:

“This transaction is a major accelerator in Dow’s ongoing transformation, and through this we are creating significant value and three powerful new companies. This merger of equals significantly enhances the growth profile for both companies, while driving value for all of our shareholders and our customers.”

In separate news, Dow Chemical also announced it will buy the remaining stake in its joint venture with Corning Incorporated (NYSE:GLW) in a deal that should help it realize $400 million in annual cost savings and potentially as much as $1 billion in additional EBITDA synergies. 56 elite funds owned Dow Chemical and 41 elite funds were long E I Du Pont De Nemours And Co (NYSE:DD) at the end of the third quarter.

In other news, Finisar Corporation (NASDAQ:FNSR) shares have surged by over 12% after the company reported second-quarter EPS of $0.25 on revenue of $321.14 million. Sales at the telecom and optical subsystems components maker increased by 8.1% year-over-year, helping Finisar beat analyst profit expectations by $0.02 per share and revenue estimates by $7.28 million. Although third-quarter guidance of $0.19 – $0.25 in EPS and $300 million – $320 million in revenue is a little below analyst expectations of $0.24 and $318.6 million, the guidance is evidently better than market expectations given today’s rally. George Soros’ Soros Fund Management owned 666,666 Finisar Corporation (NASDAQ:FNSR) shares at the end of September.

On the next page, we examine why Adobe and United Development Funding IV are trending.
Software maker Adobe Systems Incorporated (NASDAQ:ADBE) shares are up by 3% in morning trading after the company beat earnings estimates and reported in-line revenue numbers. For its fourth fiscal quarter, Adobe Systems Incorporated (NASDAQ:ADBE) reported EPS of $0.62 per share on revenue of $1.31 billion, exceeding earnings estimates by $0.02 per share. For the full fiscal year Adobe reported non-GAAP diluted earnings per share of $2.08 on revenue of $4.8 billion. The company also repurchased 8.1 million shares. First-quarter guidance includes EPS in the range of $0.56 to $0.62 and sales between $1.3 billion and $1.35 billion, within the analyst estimates of $0.62 on revenue of $1.33 billion. Jeffrey Ubben’s ValueAct Capital and Stephen Mandel’s Lone Pine Capital are both long Adobe.

Last but not least, United Development Funding IV (NASDAQ:UDF) shares are down another 25.6% following a post alleging that the company was a Ponzi scheme. The bearish article noted, among other things, that United Development Funding IV (NASDAQ:UDF)’s previous auditor declined to continue being the company’s auditor last month. There are many rumors circulating the Street regarding the authors of the report, with some sources attributing the reports to Kyle Bass of Hayman Advisors, who is also believed to have a short bet against United Development Funding IV. The company said in a statement issued earlier today:

“United Development Funding III and United Development Funding IV are aware that a hedge fund has created a significant short position in United Development Funding IV shares (NASDAQ:UDF). We believe that this hedge fund is trying to unlawfully profit by manipulating and depressing the price of United Development Funding IV shares.”

Disclosure: none