Institutional investors were buying the shares of Walt Disney Co. (DIS) at a very fast pace in the first quarter, well ahead of the big stock surge. Disney’s stock has increased by over 21% in 2019, easily ahead of the S&P 500’s gain of 13%. Disney’s big gains have followed an Investor Day in April, which revealed the company’s streaming media ambitions that are likely to propel the company’s future growth.

According to data compiled by WhaleWisdom, the number of investors buying the stock ahead of the investor’s event was at over 2.5 to 1. Disney was the number one stock added to portfolios with more than 500 filers.

Piling In

During the first quarter, 1,419 institutions added to their holdings of Disney while 246 created new ones. Meanwhile, just 540 institutions reduced their positions, while 87 sold out completely. The strong showing among investors placed Disney at seven on the WhaleWisdom Heat Map, up from 70 in the prior quarter.

(WhaleWisdom)

The Event

Investors appeared to be piling into Disney ahead of its Investor Day on April 11. It was in that presentation that the company revealed for the first time its new Disney+ streaming application and the pricing for the service.

The company revealed it planned to price Disney+ at $69.99 per year for an annual subscription or a monthly rate of just $6.99. Additionally, the company noted that it expected to have 60 – 90 million subscribers by the end of the fiscal year 2024, with 1/3 coming from US subscribers and 2/3 from international. Also, Disney sees the streaming unit turning profitable by the year 2024. Further, it noted expectations for the number of Hulu subscribers to roughly double by the year 2024 to 40 – 60 million.

(Disney)

Hulu

Since the event, the stock has jumped by over 13.6% to a new record high. Also, following the event in mid-May, Disney announced it would buy out Comcast Corp.’s 33% stake in Hulu, to become the sole owner of the company by the year 2024. However, as part of the deal, Disney would immediately take over full operational control of Hulu.

In what seems like an instance, Disney went from a company struggling to grow revenue and earnings with mounting subscriber losses at its ESPN unit, to a streaming media business. It has resulted in a positive stock reaction that has paid off for the investors jumping in ahead of the transformational shareholder event.

Square (SQ) Inc. was one hot stock among the investing community in the first quarter, with shares soaring by over 33%. As a result, the equity landed on WhaleWisdom’s heat map at number 1 and was included on the WhaleWisdom WhaleIndex 100.

The first quarter come back was likely spurred by the fact that the stock fell by nearly 43% in the fourth quarter. The significant pullback resulted in the stock falling to its lowest levels since May 2018. It was likely one reason why hedge funds were aggressively buying the stock during the first quarter as it began to rebound.

Number 1

The heatmap is determined by tracking the activity of the top 150 hedge funds used in the most recent WhaleScore calculation. For the first quarter, 21 of the 150 funds held the stock in their portfolio, while 4 had the shares within there top ten holdings.  In total, 18 funds increased their positions, while only 2 decreased their holdings.

In general, hedge funds were buying the stock, with the total number of 13F shares increasing to 22.1 million from 18.4 million in the prior quarter. In total, 28 funds created new positions as 23 added to existing ones. Also, 28 funds reduced their holdings as 9 closed them out completely.

(WhaleWisdom)

Square Cools

Square’s hot start has cooled some in the second quarter, as shares have dropped by about 12%. The company reported underwhelming fourth quarter results at the beginning of February, and that turned the momentum in the stock. That was followed by better than expected first quarter results on May 1, with earnings of $0.11, 40% higher than analysts’ estimates. Revenue was also substantial at $489.05 million, about 2% better than forecast.

However, the company gave weaker than expected second quarter guidance, and that has caused analysts to reduce their earnings forecast by 14% to $0.16. Meanwhile, revenue estimates have remained unchanged at $558.04 million.

High Valuation

Overall, one of the main challenges that the stock faces is its valuation at 58 times 2020 earnings estimates of $1.13 per share. The company is forecast to deliver earnings growth of 61% in 2019 and 49% in 2020, which does help to support that high multiple.

The high valuation is one reason why the stock is likely to continue to see an ebb and flow of activity from hedge funds in the coming quarters. The company offers the opportunity to generate significant profits for investors, but it comes with a heightened risk.

Cisco Systems, Inc. (CSCO) has quietly put together an outstanding year, with shares of the networking company rising by over 23%. It has been quite the turnaround story for a company once heralded as a darling among investors in the late 1990s, and then nearly forgotten about over the past 2 decades. Sentiment for the stock appears to be shifting.

Investors seem to be upbeat about the company, with the stock ranking at 30 on the WhaleWisdom heat map, which is down from 7 in the third quarter. Still, it is a strong placement on the 100-company heat map. The heatmap tracks holdings of the top 150 hedge funds using the most recent WhaleScore calculation.

Strong Placement on the Heat Map

Of the 150 hedge funds tracked in the heat map, 29 hold the stock in their portfolio, and 3 hold the stock among their top 10. Meanwhile, 9 of the funds increased their holdings, while 15 decreased them. The declining number of funds holding the stock was one reason why the stock moved down in the ranking.

         (WhaleWisdom)

Over the fourth quarter, among total institutions, the total number of 13F shares decline by less than 1% to 3.33 billion. Additionally, 849 institutions were adding to their holdings, while 229 started new positions. Meanwhile, 990 funds were reducing their stakes while just 105 exited the stock altogether.

Quarterly Results Approach

It brings up a big question: what will investors be doing with the stock after the company reports results on May 15? Analysts estimate that Cisco’s fiscal third quarter 2019 earnings grew by 17.2% to $0.77 per share, while revenue is forecast to have increased by 5% to $12.9 billion.

The company has a history of beating analysts’ estimates. In the past eight quarters, Cisco has topped analysts’ revenue and earnings estimate 8 times. It makes for good odds that the company will beat those earnings estimates again.

It May Come Down to Guidance

It may then come to forward-looking guidance. For that, analysts estimate that revenue will rise to $13.3 billion, while earnings climb to $0.81 per share next quarter. Should the company deliver reliable results and provide strong guidance, it would seem likely that the stock will continue its higher trend this year, and possible that strong results will propel the stock up the WhaleWisdom heat map as investors buy the equity.

Cisco has been among the more significant turnaround stories of the last two decades. It’s hard to believe that despite the stock’s recent run, it shares are still trading at less than half their value of the late 1990s when the company had a market capitalization of about $500 billion, and now 20 years later sits at around $235 billion. Indeed, the stock still has a long way to go to return to its former glory.

Alibaba Group Holding Ltd.’s (BABA) stock has soared in 2019, rising a stunning 42%. The strong stock performance followed a horrid fourth quarter when the shares plunged on trade war worries and fears of slowing global growth. However, the tides have turned and it seems that investors are now aggressively buying the stock given its sharp rise, ahead of the company’s fiscal fourth quarter results on May 15.

Despite the horrible fourth quarter stock performance, the shares landed on the WhaleWisdom heat map at 87, up from its previous position of 124. The heatmap tracks the top 150 hedge funds using the most recent WhaleScore calculation.

Scooping Up Shares

Fourth quarter holdings revealed that 32 of the 150 hedge funds tracked for the heat map held shares of Alibaba, while 12 of the funds held the stock among their top-10 holdings. Additionally, 13 funds increased positions and 25 funds decreased holdings. However, what’s more interesting is that overall total institutions were buying the stock, with the number of total shares rising by 4% to 1.03 billion.

(Whale Wisdom)

Betting on Better Results

With the earnings just a couple of weeks away, the stock has been on the rise. Since April 30, the shares have increased by over 5%. It follows a period between the beginning of March and the end of April that saw the stock rise less than 1%. Also, helping to fuel that rise is renewed hope that the US/China trade war may soon come to an end. The stock has often been used as a proxy for the trade war.

Opportunity Is There

Analysts currently estimate that revenue increased by more than 40% in the fiscal fourth quarter to $13.7 billion. However, earnings are expected to have grown by around 9% to $0.98. The company has been investing back into the business in recent quarters, causing margins to contract, which has produced weaker earnings. It does set up an opportunity for the company to top results on the bottom line. It may be another reason why the stock has suddenly started to rise recently.

If it is the case that earnings are better than expected, it may result in the stock rising to even higher prices. It could cause a melt-up scenario, as investors that may have missed the first quarter rally begin to pile into the name. The big question will be what the investors that bought the stock at lower levels will be doing? Profit taking could undoubtedly be a genuine possibility.

Advanced Micro Devices Inc. (AMD) has been on a wild ride over the past year, with the stock rising by over 150%.  The big test for the company will come on April 30 when it reports first quarter results. It follows disappointing guidance from Intel Corp. (INTC), which is seeing weakness in some of its end markets.

Shareholders of AMD appear to be resilient, with several institutions increasing their holdings during the fourth quarter stock market downturn. It may mean that even if AMD posts weak results, the stock may not stay down for long.

Buying the Stocks

During the fourth quarter, the total number of 13F shares held by institutions increased by 8% up to 636 million from 590 million in the third quarter. Additionally, there were a total of 113 institutions that created new positions, while 232 added to existing ones. Meanwhile, just 172 institutions reduced their holdings, while 111 liquidated.

(Whale Wisdom)

Taking Advantage of Weakness

Since the beginning of the year, AMD’s stock has risen by 51%. Weak earnings results may provide institutions the opportunity to scoop up the shares at lower prices as they did in the fourth quarter when the economic environment appeared to be deteriorating. The last round of economic data from the US and China would suggest that is not the case.

Intel did note that data center business was experiencing a slowdown during its first quarter conference call, which may also weigh on AMD’s results. However, it could also mean that AMD is capturing market share away from Intel. Either way, it seems there may be buyers waiting regardless of the news.

What Analysts Expect

According to the data from Ycharts, analysts estimate that earnings for the chipmaker will drop 48% to just $0.06 per share. Meanwhile, revenue is forecast to decline by 23.6% to $1.26 billion.  The company has reasonable success topping earnings estimates but has often missed out on revenue expectations.

Big Levels of Uncertainty

The options market is pricing in a massive amount of volatility for the stock following results. The long straddle options strategy suggests that the stock may rise or fall by as much as 14% by expiration on May 17 from the $28 strike price. It places the stock in an enormous trading range between $24 and $32, which would suggest that there is a tremendous amount of uncertainty surrounding the stock’s results.

Just how good or bad the results may be, it seems that there are plenty of investors willing to suck the stock up should it fall to the right price; at least that is what the heavy buying in the heat of the fourth quarter stock market sell-off would indicate.