Why the Spotlight is Shining on Amazon, Teva, Bank of America, and More Today

Interest rate-sensitive financial stocks are in the spotlight today after previously-dovish Boston Federal Reserve President Eric Rosengren said that “a reasonable case can be made” for hiking rates, albeit gradually.

Given the development, it’s not surprising that several financial stocks are on our list of the day’s biggest newsmakers. In this article, we’ll analyze the events causing Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), Amazon.com, Inc. (NASDAQ:AMZN), Bank of America Corp (NYSE:BAC), E*TRADE Financial Corp (NASDAQ:ETFC), and Citigroup Inc (NYSE:C) to trend and use the latest 13F data to determine how hedge funds are positioned among the five equities.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).

Traders are talking about Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) today after the drug company gave a relatively upbeat presentation on its generic business on Friday. According to the company, Teva currently leads the global generic market, with 8% market share powered by a global portfolio of 16,000 products that average around $14 billion-to-$15 billion in sales when not including OTC. There is growth ahead as well, as Teva’s management believes that the global generic market will grow to $292 billion in 2020 from $220 billion in 2016 as the tailwinds of an aging population and increasing diagnosis/treatment rates spur demand. Bulls hope Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) can take advantage of the growing demand and successfully unlock synergies from its $40.5 billion Actavis Generics acquisition, which recently closed. Andreas Halvorsen‘s Viking Global reported holding a stake of over 27 million shares in the generic drug producer as of the end of June.

In its quest to take more market-share from Netflix, Inc. (NASDAQ:NFLX), Amazon.com, Inc. (NASDAQ:AMZN) is reportedly interested in seeking the rights to stream live sports anywhere, from professional rugby to the French Open. In addition, the company is interested in streaming baseball and basketball, although the rights to those popular sports have largely been taken for many years by traditional media companies. By buying the rights to live sports, Amazon could differentiate itself from Netflix and capture more of the cord-cutting audience. 145 funds in our system were long Amazon.com, Inc. (NASDAQ:AMZN) as of the most recent 13F reporting period.

On the next page, we’ll examine financial stocks Bank of America, E*TRADE Financial, and Citigroup.

As mentioned previously, Bank of America Corp (NYSE:BAC), E*TRADE Financial Corp (NASDAQ:ETFC), and Citigroup Inc (NYSE:C) are capturing traders’ interest today after Boston Federal Reserve President Eric Rosengren said that he basically supports raising rates sooner rather than later. The normally-dovish Rosengren’s comments follow Federal Reserve Chairwoman Janet Yellen’s statement made in late-August that the case for raising interest rates at least once in 2016 has “strengthened”. Although the global economy is weak and much uncertainty abounds in China and the emerging world, the U.S. economy is very strong.

With the economy close to full employment, the Fed is paying attention to future inflation risks more than before. If interest rates rise, even gradually, bank stocks such as Bank of America and Citigroup will likely make more in NIM and interest-related profits. Diversified brokers like E*TRADE who loan money on margin will likely do comparatively better. Since the market is forward looking, the stocks of the three, which trade at relatively cheap valuations, could do very well.

Of the 749 hedge funds that we track which filed 13F’s for the June quarter, 35 owned shares of E*TRADE Financial Corp (NASDAQ:ETFC), 97 had a long position in Citigroup Inc (NYSE:C), and 102 were long Bank of America Corp (NYSE:BAC) on June 30.

Disclosure: None