Why Are These Stocks Trending Today?

With the pivotal Federal Reserve FOMC meeting beginning and investors still on edge over weak crude prices, shares of Lumber Liquidators Holdings Inc (NYSE:LL), Symantec Corporation (NASDAQ:SYMC), SunPower Corporation (NASDAQ:SPWR), SolarCity Corp (NASDAQ:SCTY), and First Solar, Inc. (NASDAQ:FSLR) are trending for various reasons. Let’s take a closer look.

Moreover, we will also examine relevant hedge fund sentiment toward the equities. 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 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 48.6% 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).

After being a very vocal critic of the company, Whitney Tilson of T2 Partners wrote in a blog post that he covered his (profitable) short in Lumber Liquidators Holdings Inc (NYSE:LL):

“In the past week, I’ve received information (I can’t reveal the details at this point) which leads me to believe that it’s likely that senior management of Lumber Liquidators: 1) Wasn’t aware that the company was selling Chinese-made laminate that had high (non-CARB2-compliant) levels of formaldehyde; and 2) Made the decision to continue selling the product even after the 60 Minutes story aired in large part because they genuinely believed that the product was safe and compliant.”

Seeing as shorts make up 40% of Lumber Liquidators Holdings Inc (NYSE:LL)’s float, day-traders and algo’s are speculating that Tilson’s short covering could prompt more short covering by other bearish traders. Among the funds we track, a total of 13 held long positions in Lumber Liquidators at the end of September, amassing stakes equal to around 9% of the company.

The analysts at Morgan Stanley are more bullish on Symantec Corporation (NASDAQ:SYMC) today, as they upgraded the computer security company to ‘Overweight’ from ‘Equal Weight’ and raised their price target to $26 per share from $24 per share. Morgan Stanley’s upgrade comes just days after the analysts at Citigroup wrote that Symantec Corporation (NASDAQ:SYMC) could face “less favorable trends” after performing a survey of 51 Chief Information Security Officers. With the sell-side somewhat divided, the buy-side is becoming more optimistic, with 38 elite funds long the stock at the end of September, up by three over the quarter. Ken Griffin’s Citadel Investment Group holds 9.43 million shares of Symantec as of September 30.

On the next page, we examine SunPower Corporation, SolarCity Corp, and Santander Consumer USA Holdings Inc.

Partly because the price of crude oil is rebounding and partly because Congress is reportedly considering extending renewable energy tax credits in exchange for lifting the oil export ban, shares of SunPower Corporation (NASDAQ:SPWR), First Solar, Inc. (NASDAQ:FSLR), and SolarCity Corp (NASDAQ:SCTY) are each higher in pre-market trading. All three companies could benefit from the extension of the ITC tax credit that is currently driving demand in the United States. All three stocks will also see short covering if crude prices spike. If Congress extends the ITC expiration past December 2016, look for the stocks to do well. Among the funds we track, 29 investors owned 21% of SolarCity Corp (NASDAQ:SCTY) at the end of the third quarter, while 20 funds were long 3.5% of SunPower Corporation (NASDAQ:SPWR)’s float. First Solar is even more popular with a total of 34 investors reporting long positions as of the end of September, amassing 8.10% of the company’s outstanding stock.

Disclosure: none