Morning Brief: Popular Hedge Fund Stocks Beat Earnings Expectations

Several companies whose stocks are very popular among hedge funds reported quarterly earnings after the closing bell rang on Wednesday. And most of them exceeded expectations, potentially setting up a strong day Thursday for these and perhaps other similar stocks.

Of course there was keen interest in Facebook, the embattled social media pioneer and the most widely held stock among hedge funds. The company’s first quarter earnings easily exceeded expectations. In addition, the company announced another $9 billion stock buyback. As a result, the stock shot up about 7 percent in after-hours trading. However, the reality is this is the last quarter Facebook will report results before regulators and other critics began taking a very close look at its data collection and dissemination strategy.

“It is not the same investment it was two years ago or three years ago,” said Ross Gerber, co-founder of investment management firm Gerber Kawasaki, in an interview on CNBC. At year-end, at least 265 hedge funds held a position in the stock, according to Novus. At least 70 hedge funds counted the stock among their top-10 holdings, according to Goldman Sachs.

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Shares of global payments giant Visa jumped nearly 3 percent in after-hours trading after it reported second-quarter revenues and earnings that beat consensus forecasts. The stock was the seventh-most widely held among hedge funds at year-end, with at least 209 holders, according to Novus.

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Shares of electronic payments giant PayPal jumped more than 3 percent in after-hours trading after the company beat quarterly earnings estimates. At year-end it had at least 141 hedge fund investors.

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Meanwhile, shares of activist favorite Chipotle Mexican Grill surged more than 10 percent after reporting earnings and same-store sales figures that exceeded expectations. The casual dining company also announced a $100 million stock buyback. Bill Ackman’s Pershing Square Capital Management is by far the largest shareholder.

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UBS trimmed its price target on Caterpillar from $190 to $178 after the heavy equipment manufacturer reported very strong first-quarter results on Tuesday but warned that its earnings are at a “high water mark” for the year. The investment bank retained its Buy rating on the stock.

“We think this was misinterpreted by the market as a bearish message implying the cycle is at peak,” UBS asserts in a note sent to clients Wednesday morning, stressing the message was that the first quarter will just be the strongest quarter for earnings this year. “We think CAT will approach mid-cycle earnings over the next year,” it adds. The stock is a high-profile short bet of David Einhorn’s Greenlight Capital.