Will Anything Stop These Stocks From Big Gains Today?

Shares of McDonald’s Corporation (NYSE:MCD), Dow Chemical Co (NYSE:DOW), CIT Group Inc. (NYSE:CIT), and Ferrari NV (NYSE:RACE) were revving up in pre-market trading on various bits of good news, as each looked to get a strong start out of the morning trading gates. Let’s take a closer look at why they were building up momentum and whether it will carry them through the entire day’s trading session or not.

Wall Street Bull

First a little about ourselves. We’re a finance site that tracks hedge fund sentiment. 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 more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.7% 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).

McDonald’s Corporation (NYSE:MCD) surged by 7.9% in pre-market trading after reporting third quarter earnings of $1.40 per share on revenues of $6.62 billion, beating estimates by $0.12 per share and $210 million in revenues, respectively. Investors are excited because comparable-store sales increased by 4% globally and by 0.9% in the U.S, marking the first time that domestic comparable-store sales have increased in two years. The rising comparable-store sales show management’s turnaround plan of adopting more mobile technology and franchising more is working. Given McDonald’s Corporation (NYSE:MCD)’s dividend yield of over 3% and ROE of over 30, we like the stock for the long-term. Another potential upside driver would be if management transferred McDonald’s company-owned property into an REIT. The move would save substantial amounts of money in taxes and give McDonald’s a higher valuation. Jonathon Jacobson‘s Highfields Capital Management owns 9.81 million shares.

Dow Chemical Co (NYSE:DOW) is up by 5.77% after the company’s third quarter earnings beat estimates. For the quarter, Dow Chemical earned $0.82 per share on revenues of $12.04 billion, beating earnings estimates by $0.13 per share but missing revenue expectations by $340 million. Although revenue underperformed because of the strong dollar, business was brisk, with gains in most segments. The future is bright for the chemical company, as Dow Chemical Co (NYSE:DOW) will increase its quarterly dividend by 10% to $0.46 per share and will accelerate its $5 billion buyback program. Dow Chemical can afford to pay more dividends and accelerate its buyback because the company’s capital expenditures will decline as previous large investments come online. Dow is also ‘actively examining strategic options’ for Dow AgroSciences. Dan Loeb‘s Third Point owns 23 million shares.

On the next page, we examine why CIT Group and Ferrari NV are rallying.

CIT Group Inc. (NYSE:CIT) is up by 12.86% after the company announced that it will sell its lending operations in China and Canada, as well as consider strategic options for its $10 billion Commercial Air business. CEO John Thain will also step down, as he has successfully turned around the formerly bankrupt lender after taking the reins in 2010. Given today’s rally, shares are down by 6% year-to-date and trade at a forward P/E of around 12. 33 of the 730 funds we track reported stakes worth $1.09 billion in CIT Group Inc. (NYSE:CIT), representing 13.50% of the float, in the previous round of 13F filings, down slightly from 34 funds with $1.12 billion worth of shares a quarter earlier.

Ferrari NV (NYSE:RACE) is up by an additional 3.5% after yesterday’s 5.77% gains. Investors are excited to finally be able to own a piece of the ultra-high premium car manufacturer, given the enormous value of its brand. Although Ferrari could easily sell more cars if it wanted to, the company has refrained from doing so to preserve its prestige. Given the strong U.S stock market, Ferrari’s prices will likely increase more than inflation this year, giving major Ferrari stock holders such as Mohnish Pabrai of Pabrai Investment Funds and Guy Spier of Aquamarine Capital, something to be happy about.

Disclosure: None