Hedge Funds Swap Shares as the Oracle Left Oracle: Taking Stock

(Bloomberg) -- The complication with reviewing the latest quarterly filings that cover the period of one of the worst market downdrafts in recent memory is that you’ll never really know whether the funds bought in at the bottom, sold off at the very bottom, or added to winners and losers.

The beauty though, is that it saves us from harping on the market action Thursday that went nowhere in what could have been a messy day. A WSJ report midday suggested a trade deal would face a bit more difficulty than the market is pricing in, given the recent drift above the 200-DMA. Coca-Cola had its worst day in more than a decade, setting Pepsi up for a difficult day after they announced a restructuring of their own in results.

Hedge Funds Swap Shares as the Oracle Left Oracle: Taking Stock

As discussed yesterday, the Cisco results really had the potential to set the tone, and it ended up countering much of the weakness seen in Amazon.com shares that saw bouts of volatility when thrust into the political spotlight, as a victim and as an evil opportunist in the HQ2 NYC drama.

But the final day of trade talks (in this round anyway) Friday poses some nice symmetry, given Deere results are likely to zero in on the trade exposure. JPMorgan analysts noted earlier this week that the fundamental outlook for U.S. agriculture was essentially no clearer than it was in November, despite Chinese assurances to purchase more U.S. goods.

No Vacancy

As far as the more thematic events from the quarterly unveiling of hedge fund activity (including Hedge Fund hotels), there were of course a few standout events, like when the Oracle of Omaha exited his stake in Oracle, sending shares of the software firm down in the post-market. Two “Tiger Cubs,” Viking Global and Tiger Global, appeared to hand shares of Amazon.com to one another, with the former adding to its stake (joining fellow Tiger Cub Coatue Management), and the latter divesting. To be sure, the above still hold sizable stakes in the online retailer.

Of the major complete divestments besides stocks involved in special situations and transactions in excess of $170 million, of funds tracked by Bloomberg, video game makers Activision Blizzard and Electronic Arts each saw two hedge fund exits, Alibaba (4 exits), Facebook (4 exits), Microsoft (4 exits) and NXP Semiconductors (3 exits).

Key names that attracted new interest (an investment larger than ~$105 million) from the hedge fund community during the selloff included Adobe (3 adds), Align Technology (3 adds), Micron Technology (3 adds), Starbucks (4 buys) and Wellcare (3 buys)

Other interesting stocks included the time-share offshoot of Hilton Worldwide, Hilton Grand Vacations, which attracted Highfields Capital Management, Davidson Kempner, Senvest Management and David Einhorn’s Greenlight Capital as new investors. Hilton Worldwide itself saw a boosted stake from Pershing Square, after news of the investment was disclosed in the fall.

Big Boys

Some of the biggest stories during the last quarter revolved around General Electric, Apple and Facebook, which suffered at the hands of many a scandal, while GE plumbed its lows of $6.66. There was clearly opportunity in the three, as they have recovered substantively since year end.

The Apple story was interesting given the selloff into its massive pre-announcement in the beginning of 2019. Some of the largest sellers included Adage Capital, Millennium and Coatue Management, (Tiger Global and Partner Fund Management completely sold off), and some of the names who added the most included Arrowstreet Capital, Citadel Advisors and DE Shaw. Highfields and Taconic Capital took new stakes, according to data compiled by Bloomberg.

Hedge Funds Swap Shares as the Oracle Left Oracle: Taking Stock

The GE disaster saw Slate Path and Owl Creek take brand new stakes at some point in the quarter, while Fir Tree and Viking Global completely washed their hands of the industrial giant (the latter dumped its $1.5 billion stake at some point). Adage, Millennium and Tobam added decent chunks to their holdings, while DE Shaw and Citadel Advisors trimmed some of their stakes.

Facebook attracted some large players during the quarter, with SRS Investment and Appaloosa Management each dumping close to half a billion worth of their stakes, while SPO Advisory, Meritage Group and Oz Management dumped their entirety of their stakes. Brand new positions in Facebook however rarely exceeded $100 million, with just Abrams Capital and Kensico Capital. Altimeter Capital and Viking Global each more than double their stakes, investing more than $300 million each, while Lone Pine and Citadel each adding stakes in excess of $100 million.

On Tap for Next week

The Holiday-shorted week in North America (President’s Day for the U.S. and Family Day in Canada on Monday), leaves the calendar light, especially with earnings season winding down.

Before the week even begins, we may see tariff-related bombshells hit as the Commerce Department is due to provide the results of its investigation into the national security implications of auto imports on Sunday. It is believed that President Trump could use the report as justification for tariffs.

Conferences will take center stage, specifically the consumer-focused CAGNY where many names will present fresh outlooks. Many have just reported results, but there will be pockets of detail to be found, like the state of play for cigarettes, beverages (especially relevant after KO’s disaster Thursday), marijuana (STZ presents), and potentially the impact from trade discussions and tariffs on sentiment. Industrials will also be in focus as both Barclays and Citi will both be running events that feature names like Boeing, J.B. Hunt, Caterpillar, Sherwin-Williams (after fully recovering from the big miss in mid January),

You can’t completely dismiss earnings as a driver however, as some pretty significant players will provide a taste of different pockets within the economy. Big consumer/defensive players Walmart, Kraft Heinz will report, and additional cloud player details in Hewlett Packard Enterprise results. We can check in on how Zillow’s prospective home flipping operations are performing, and whether Roku will shake off all the pending competition in the streaming video space (following Jan. details that Walmart was abandoning its plan). And remember the "BATs"? The worst performing member in the past year, the B in Baidu, Alibaba, Tencent is also scheduled.

Last but not least, we’ll see a bunch of Fed speakers and the FOMC minutes. The minutes come Wednesday, where the parsing of tone begins. How "pause-y" was the meeting really? Was the door slammed on rate hikes or was the door stopper just removed?

Sectors in Focus Today

  • Consumer stocks again after Yeti went one way (higher), and Canada Goose went the other, breaking with their recent trends, look for any bounce back
Hedge Funds Swap Shares as the Oracle Left Oracle: Taking Stock
  • Online services stocks (like CARS, CARG) after Truecar’s results disappointed
  • XPO provided a little validation of the recent short seller report after results for the logistics provider fell 15%
  • Remote virtualization and voice firms like CALL, TWLO, RNG after LOGM results missed
  • Chipmakers after Applied Materials slightly missed and Nvidia surprised to the upside

Notes from the Sell Side

Workday is indicated higher after Cowen analysts set the new Street-high at $225 with their upgrade to outperform from market perform. Analyst J Derrick Wood indicates their checks show a "strong" up-tick in the pipeline for Cloud Fin’l customers. Wood sees FY20 as an inflection year for the enterprise cloud application developer which could lead to more powerful growth catalysts and larger total addressable market.

Truecar is one of the largest underperformers in the pre-market, down nearly 20% after results. RBC analyst Mark Mahaney, in a downgrade to sector perform from outperform, wrote that the results were below expectations due to operational, execution challenges and SEO headwinds that impacted consumer traffic. He expects the issues and fundamentals to persist for much of 2019.

Tick-by-Tick Guide to Today’s Actionable Events

  • Tiger Woods 2nd event of the season at Genesis Open
  • 7:45am -- PEP earnings call
  • 8:30am -- Feb Empire manufacturing; Jan import/export price index
  • 9:00am -- Enbridge earnings call
  • 9:15am -- Jan Industrial production, capacity utilization
  • 9:55am -- Fed’s Bostic speaks on workforce development
  • 10:00am -- University of Michigan Sentiment
  • 10:00am -- DE earnings call
  • 1:30pm -- MAT analyst meeting
  • 4:00pm -- Tic Flows

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