Why These 5 Stocks Are Making Noise Today

Crude futures are 0.7% in the green this Thursday morning as bullish investors position themselves for the upcoming Doha meeting of oil producers this weekend. Given the correlation between crude and the stock market, it’s not surprising that the S&P 500 and Dow futures are positive, albeit only slightly. Among the stocks buzzing today are Bank of America Corp (NYSE:BAC), Delta Air Lines, Inc. (NYSE:DAL), McDonald’s Corporation (NYSE:MCD), Valeant Pharmaceuticals Intl Inc (NYSE:VRX), and Seagate Technology PLC (NASDAQ:STX). Let’s find out why and see what the world’s greatest investors think of each stock.

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).

America’s Bank Reports Earnings

Bank of America Corp (NYSE:BAC) is up by 1.4% this morning after reporting mixed earnings for the first quarter. The bank earned $0.21 per share on revenue of $19.7 billion for the period, meeting analysts’ earnings estimates but whiffing on their top-line expectations by $600 million. Revenue came in lower than last year’s results due to lower interest rates and weaker trading revenue. Tangible book value rose to $16.17 versus $15.62 in the fourth quarter, while Bank of America’s CET1 ratio came in at 11%. Bank of America’s consumer banking division is becoming more efficient, with the efficiency ratio falling by 300 basis points to 56%. Bank of America is somewhat of a hedge fund favorite, with its stock being the most widely-held financial stock among the elite funds that we track. 113  of those funds held shares of Bank of America Corp (NYSE:BAC) at the end of the fourth quarter, up from 108 funds at the end of the third quarter.

Leading Airline Reports Better Than Expected Bottom-Line Results

Delta Air Lines, Inc. (NYSE:DAL) is 0.75% higher in early trading today after the company turned in a solid first quarter. For the first three months of the year, Delta earned $1.32 per share on revenue of $9.25 billion, beating earnings estimates by $0.02 per share. However, the strong dollar caused Delta’s operating revenue to decline by 1.5% year-over-year and led the company to miss sales expectations by $20 million. Management expects an operating margin of 21%-to-23% for the second quarter, and for passenger unit revenue to decline by 2.5%-to-4.5%. David Tepper‘s Appaloosa Management LP was one of the 108 funds in our database that held shares of Delta Air Lines, Inc. (NYSE:DAL) on December 31.

On the next page, we examine why McDonald’s Corporation, Valeant Pharmaceuticals, and Seagate Technology are all making noise this morning.

McDonald’s Continues its Asset Light Initiative

McDonald’s Corporation (NYSE:MCD) shares are 0.59% in the green this morning after Reuters reported that the restaurant chain is targeting PE firms such as Bain Capital, TPG Capital, and others, for a sale of 2,800 restaurants in North Asia. McDonald’s has a long-term goal of franchising 95% of its stores, and selling the 2,800 restaurants to third-party owners would help with that initiative. Like its other franchised stores, McDonald’s would still receive ongoing royalty fees after the sale. McDonald’s Corporation (NYSE:MCD) shares have rallied by 8% year-to-date and the company counted 84 hedge funds in our system as shareholders of its stock at the end of December, up from 75 at the end of September.

A Troubled Drug Maker Finds its Credit Downgraded

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is slightly in the red this morning, by 2.24%, after Standard & Poor’s lowered the company’s credit rating to ‘B’ from ‘B+’. The agency cited the risk that Valeant may be unable to file its annual report by April 29, putting it in default with debt holders, as the reason for the downgrade. Mark T. Gallogly‘s Centerbridge Partners filed a default notice earlier this week, related to the delay in Valeant filing its annual report. In a statement, Valeant said that the company can cure the potential default if it files its annual report by June 11. Valeant also said it is on schedule to file its annual report on or before April 29. Bill Ackman’s Pershing Square and Jeffrey Ubben’s ValueAct Capital were major shareholders of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) on December 31, and Mr. Ackman has since added more shares to his position.

Slower Quarter Expected for Seagate

Seagate Technology PLC (NASDAQ:STX) shares have fallen by 18% this morning after the company warned that its financial results for the third quarter of fiscal year 2016 will come in lower than previously guided. For the time period, the hardware driver maker now expects sales of $2.6 billion and gross margin of 23%, versus previous estimates of $2.7 billion and 25.6%. Seagate also expects to ship 39 million hard drives. Sales were weaker-than-expected due to lower mission-critical enterprise sales and soft desktop demand. 25 funds in our system owned $374.41 million worth of Seagate Technology PLC (NASDAQ:STX)’s shares on December 31, which accounted for 3.40% of the float.

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