2 Stocks Buzzing After Hedge Fund News

Starboard Value reported a 9.9% stake in Cars.com

Patrick Martin
Dec 19, 2017 at 10:16 AM
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As markets await news on the tax reform vote, two stocks have already ascended to fresh record highs this morning: streaming content provider Roku Inc (NASDAQ:ROKU) and online automotive stock Cars.com Inc (NYSE:CARS) are both moving after hedge funds reported stakes. Below, we will take a closer look at ROKU and CARS stocks.

ROKU Stock Could Have Room to Run

Morgan Stanley reported a 5.1% passive stake in Roku Inc, as of Dec. 7, per a Securities and Exchange Commission (SEC) filing. The news initially sent ROKU stock to a new record high of $57.75 out of the gate, but the shares have since turned 2.2% lower to trade at $54.88. ROKU stock has been on a tear since its initial public offering (IPO) on Oct. 3, and is now trading at roughly four times the IPO price of $14. The shares have rallied more than 40% just in the past month, with help from Twenty-First Century Fox (FOXA).

Considering the shares sport a 14-day Relative Strength Index (RSI) in overbought territory, today's breather isn't all that surprising. Still, the tech stock could have room to run in the form of a short squeeze. Short interest increased by 61% during the last reporting period, to 7.70 million shares, a new all-time high. This represents a whopping 49% of ROKU's total available float.

Cars.com Stock Drives to New Record High

Starboard Value reported a 9.9% stake in Cars.com, per a recent SEC filing. The hedge fund believes CARS stock is undervalued, and sees potential for it to improve margins down the road, per The Wall Street Journal. The news sent CARS stock to a new record high of $30.30 out of the gate, with the shares last seen 5.4% higher at $29.40. Cars.com completed its spin-off from Tegna (TGNA) in June -- which represents the last time CARS stock traded north of $29.
 
Options traders have preferred CARS calls over puts by a big margin amid the stock's recent climb. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CARS boasts a 10-day call/put volume ratio of 10.38. However, some of the recent call buying -- particularly at out-of-the-money strikes -- could be attributable to short sellers hedging. Short interest accounts for 27.7% of the stock's float, representing nearly three weeks' worth of pent-up buying demand, at CARS' average pace of trading.
 

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