An investment style used by some of the most prestigious universities and the wealthiest families in the world returned 20% annualized versus a return of effectively 0% for the S&P 500 during the worst decade for stocks ever: 2000-2010.
This investment style does not use complicated derivatives or short selling. It simply buys stocks (with a small twist, of course) … and that means any retail investor can use this exclusive investment strategy.
This investment strategy is called “event-driven investing.” And it is exactly what it sounds like.
You’re buying a stock based on the prospect of a big move higher, driven by a specific catalyst. These events could be anything from the Food and Drug Administration’s approval of a drug, to the sale of a company, a macro-policy event, a spinoff of a company’s business or anything in between. And the beauty of event-driven investing is that it has little to no correlation to the stock market. This strategy profits in any market condition — a down market, flat market or up market.
All you need is an event that moves shares higher, and a stake in the right stock before that happens.
Event-driven investors don’t care about what the stock market is doing at a high level, because they are watching specific companies for a specific reason. It’s not always a sure thing, of course, and this means betting on the likelihood of a future event based simply on the best information at hand — and the biggest profit potential if the chips fall right.
But would you rather invest based on an informed view of an individual company, or simply fall prey to the whims of the global economy and broader market sentiment?
The best part of all is that event-driven investors also know when to sell. That’s one of the hardest things for many of us to do. But if you’re betting on an event, you just wait and then sell if and when the event occurs — with no extra analysis required!
For many reasons, event-driven investing is preferable to simply throwing your lot in with the standard batch of blue-chip stocks and index funds. But which stock picks have the highest potential return in the next few months based on near-term events and possible catalysts?
Below are seven trades that event-driven investors at top hedge funds are watching right now. Many of these insiders expect these picks to DOUBLE … or even TRIPLE as a result, no matter what the stock market does!
Take a look:
Gilat Satellite Networks (NASDAQ:GILT) has been sawing along in a range this year, largely waffling between $8 and $9. So why is this a name investors should keep an eye on? And why is it a name Renaissance Technologies has taken a stake in?
The answer is 5G. Satellite communications is going to play a big part in the rollout of 5G over the next few years, which stands to change our lives in a major way. Demand for faster internet speeds to accommodate new technologies is the catalyst for a 5G boom. With browsing speeds increasing from around 71 Mbps for 4G devices to around 1.4 Gbps for 5G-connected devices, this technology can easily support virtual and augmented reality, self-driving cars, and a fully integrated Internet of Things. This is a massive opportunity from which Gilat could profit big-time.
And that’s not the only thing boosting GILT stock. It has inked a telecommunications agreement with Peru’s Fitel worth $154 million. It has worked with Hispamar in Brazil to use satellites to enhance broadband access. It has even pushed into providing broadband on an in-flight aircraft, working with Telesat and Global Eagle to demonstrate how seamlessly it can work. Could this be the future of in-flight internet? If it is, that’s just one more tailwind that could launch GILT stock.
If you’re looking for stocks that could double, biotechs are an excellent spot to start. And Acorda Therapeutics (NASDAQ:ACOR) could be a star in that space. Scopia Capital Management clearly thinks so, as it has taken a position in ACUR stock to the tune of $215 million. Scopia’s tendency toward investing in fundamental value is a plus here, as the markets are selling off anything that’s trading at too large a multiple with too little earnings growth.
Acorda stock has suffered at the hands of bad headline news in the latter half of 2018. It lost a legal fight over patents on some of its Ampyra patents in September and had the FDA push back a ruling on Inbrija, a Parkinson’s disease treatment, sending shares tumbling from $28 to a current perch near $18. But that doesn’t mean Inbrija is out of the running. The delay was caused by Acorda filing more requested paperwork for Inbrija, necessitating more time for the FDA to look the material over.
Then there’s the ever-present possibility of a takeover. When it was rumored to be exploring the possibility of a sale earlier in 2018, multiple companies were named as possibly interested. That means there’s multiple potential catalysts for investors to see growth from ACOR stock.
It can be easy to dismiss esports as just a bunch of kids watching a bunch of other kids play video games. But the truth is, esports is surging — it’s expected to be a $1.4 billion industry by 2020. And that could mean big things for Huya (NYSE:HUYA), the Chinese equivalent of Amazon’s (NASDAQ:AMZN) video streaming site Twitch. Tiger Global Management certainly saw enough worth in the company to invest. What’s more, analysts peg HUYA to hit $26.90 over the next year, which is nearly double its current perch.
That would be good enough to put HUYA on our radars, but the more immediate impetus? China has blocked Twitch. That means Huya has far less competition for a huge number of customers — and that’s great news for its monthly average users metric, which was up 11% year-over-year last quarter.
Add in the possibility of relations between China and the U.S. normalizing next year, and there’s quite a lot of opportunity for growth in HUYA stock.
Xylem (NYSE:XYL) aptly shares its name with a type of plant tissue that conducts water. That makes sense, as Xylem’s entire business model revolves around water. The company earned the seventh spot on Fortune’s 2018 “Change the World” list for its work to stave off water scarcity problems. “By 2025, roughly 25% of the world’s population, or 1.8 billion people, are expected to be living in areas with absolute water scarcity,” the company’s entry read.
But the true catalyst that could give XYL a boost is areas whose water scarcity should hit much earlier. Arizona is nearing shortage levels. Cape Town in South Africa balances on the brink. Plenty of areas currently are not experiencing shortages but are aware of the looming possibility.
Enter Xylem, with its products that increase efficiency and sustainability. Water is vital for life, and as concerns about potable water mount, cities will need the systems that XYL stock can provide. State Street Corporation, one of the more familiar faces in the investment services industry, has a large stake in XYL — approximately $520 million worth.
We go back to the biotech well with Sage Therapeutics (NASDAQ:SAGE), a clinical-stage biotech firm that focuses on disorders of the central nervous system. Bank of New York Mellon’s hedge fund services arm definitely sees something in SAGE stock, holding a total position worth roughly $237 million.
The story for Sage is the same as for other clinical-stage biotech stocks — and Sage is focusing its research on central nervous system disorders. It focuses on GABA and NMDA receptors, both of which have a lot to do with healthy function in the nervous system. Dysfunction within those systems is tied to a number of neurological and mood disorders, and SAGE is seeking to produce medications to treat postpartum depression, bipolar disorder, epilepsy and Parkinson’s.
Analysts expect near-100% upside for SAGE, giving it the potential to soar from $104.44 to $205.42 in the next 12 months. With a healthy pipeline in multiple phases of clinical trials, there are plenty of options for SAGE to surge in the coming months.
STAAR Surgical (NASDAQ:STAA) is a biotech that focuses on one very vulnerable part of the human body — the eye. Fifth Avenue’s Broadwood Capital has more than $320 million behind STAAR, which makes implantable lenses for ophthalmic surgery. Further, STARR patented the first foldable intraocular lens for cataract surgery — an advancement that enabled the minimally invasive version of the procedure many are now familiar with.
Lately, STAAR has been focusing (no pun intended) on making strategic partnerships to help get their lenses out to more patients. This includes its latest one with Dr. Tobias Neuhann of Germany. While the agreement itself may be small, it’s part of STAAR’s push to reach beyond hospitals and large settings toward the smaller clinics. But it doesn’t forget the big centers either, having made similar agreements with two of the largest hospitals in the world. The FDA also recently approved its Visian Toric lenses for use by surgeons in the United States.
Revenue has been on the rise, earnings are expected to roll over to positive numbers this year and analysts expect plenty of upside. With the population aging and STAA stock continually looking for more partnerships, it’s one to keep an eye on.
This last one may be the biggest stretch, but there’s certainly an argument to be made that Campbells (NYSE:CPB) could see big gains in the near future.
After about two years of the stock price spiraling downward, CPB stock is ready for a change — and that change should be coming one way or the other. On the one hand, the company recently completed a strategic review of its products, which led to recommendations to streamline the company and divest some of its non-core segments. On the other hand, activist hedge fund Third Point, which owns 7% of CPB stock, has waged a drawn-out battle with Campbell’s board that resulted in two of the group’s nominees — Blue Buffalo CEO Kurt Schmidt and Comscore President Sarah Hofstetter — earnings seats at the CPB board table.
Now that the ugliness is over, we’re looking at a more efficient company that, with the acquisition of Bolthouse Farms earlier this year, has a foot on the door of the growing healthy drinks trend. We should be seeing positive changes in the very near future.
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