Why Traders Are Closely Watching McDonald’s, Salesforce, Chesapeake, and More

It’s a good day to be a bull on Wall Street as all three indexes and crude futures are higher today. Not only is WTI approaching the critical $50 per barrel mark again, but the Dow Jones index is also up by 82 points, while the NASDAQ is 0.5% in the green, and the S&P 500 has rallied by 0.33%.

Amid the optimism, we’ll take a closer look at why investors are closely watching McDonald’s Corporation (NYSE:MCD), salesforce.com, inc. (NYSE:CRM), Chesapeake Energy Corporation (NYSE:CHK), ENSCO PLC (NYSE:ESV), and Seadrill Ltd (NYSE:SDRL) today. We’ll also use the latest hedge fund data to determine what the smart money thinks of each stock.

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).

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McDonald’s Corporation (NYSE:MCD) is in the spotlight after Reuters reported that the company is close to selling 20-year franchise rights to its Malaysia and Singapore operations to Reza group, a Saudi Arabian company, for a sum of up to $400 million. McDonald’s currently has 260 restaurants in Malaysia and around 120 in Singapore. The sale of the rights is in keeping with the company’s strategy of becoming more asset-light and having more stable cash flows. Jacob Doft‘s Highline Capital Management raised its stake in McDonald’s Corporation (NYSE:MCD) by 66% during the second quarter to 969,300 shares at the end of June.

Salesforce.com, inc. (NYSE:CRM) is off by 7% today after the Wall Street Journal reported that it could be among the bidders that submit buy-out offers for Twitter Inc (NYSE:TWTR) this week. Although potential competing bidders such as Alphabet Inc (NASDAQ:GOOG) have considerably more cash and resources to buy the social media company, Salesforce seems to be the most enthusiastic, with CEO Marc Benioff recently calling Twitter an “unpolished jewel”. Benioff also added, without specifically talking about Twitter, that “I’m looking hard at unique data-rich companies and what I can do to make them more powerful and innovative if combined with Salesforce.” With the sell-off, many in the market clearly disagree with Benioff or with the price tag which they expect the company would have to pay to acquire Twitter. Various Salesforce investors, which purportedly includes its largest shareholder, Fidelity Management, have also expressed reservations about a deal. 60 funds in our database had a long position in salesforce.com, inc. (NYSE:CRM) at the end of June, down by three funds from the end of March.

On the next page, we’ll find out why Chesapeake Energy Corporation, ENSCO, and Seadrill are trending this morning.

Seadrill Ltd (NYSE:SDRL), ENSCO PLC (NYSE:ESV), and Chesapeake Energy Corporation (NYSE:CHK) are each up by around 6%-to-7% in late-morning trading on the back of surging crude prices. As of 11:44 EST, WTI futures have rallied by 2.26% to within a hair’s breadth of the $50 per barrel mark. Traders will be keenly watching WTI futures over the course of the next few days as previous rallies in WTI have eventually sputtered out around that level.

Today’s advance is courtesy of a solid EIA report today, which showed U.S. commercial crude oil inventories falling by 3 million barrels from the previous week. Due to the drawdown, U.S. crude oil inventories have now fallen below the 500 million-barrel mark, to 499.7 million barrels. Meanwhile, distillates inventories retreated by 2.4 million barrels, while gasoline inventories inched up by 0.2 million barrels. All three forms of energy outperformed analysts’ expectations. If crude can continue rallying, there will be more hope for the offshore drilling sector and for Chesapeake.

Of the 749 hedge funds that we track which filed 13Fs for the June quarter, 17 were long Seadrill Ltd (NYSE:SDRL) at the end of June, while 30 were long ENSCO PLC (NYSE:ESV) and 31 were shareholders of Chesapeake Energy Corporation (NYSE:CHK).

Disclosure: None