Shares of Garmin Ltd. (NASDAQ:GRMN) slid to a low of $41.19 today, or over 11% from their closing price yesterday as the firm cut its forecast for the second quarter and full year. The reduced guidance for the second quarter, set at $770 to $775 million, or $0.70 to $0.72 per diluted share, was blamed on currency exchange headwinds impacting sales by $55 to $60 million year-over-year on a constant currency basis, across all consumer segments. In particular, Cliff Pemble, president and chief executive officer, said that the stronger U.S. dollar and Taiwan dollar, along with a weaker euro “created further gross margin pressure” for the second quarter. Furthermore, the navigation firm said it spent more on promotions in the fitness segment and expects an increased tax rate in the second quarter. According to data from Thomson Reuters, Wall Street was expecting profits of $0.89 per share and revenues of $773 million for the second quarter. For the full year, Garmin reduced its EPS estimate to $2.65 per share from a previous forecast of $3.10 per share. The firm reaffirmed its previous full-year revenue estimate of about $2.9 billion. Shares of Garmin, which manufactures a host of devices and products, including fitness trackers, are still down by 7.80% in afternoon trading.
The smart money appears to have expected the disappointing Garmin Ltd. (NASDAQ:GRMN) forecast cut, as the number of hedge funds tracked by Insider Monkey that were long in the stock decreased by nine quarter-over-quarter to 21 by the end of March. That significant cut was also evidenced in the total holdings of the funds, which declined by 52.08% over the course of the first quarter, to $257.62 million, while the stock lost just over 10% of its value during this time, indicating a broad sell-off of shares by the best money managers in the world. Shares have declined more than 10% since then.
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 139% over the last 34 months, which is more than 80 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
Insider purchases or sales of shares is another area Insider Monkey looks at to deduce the sentiment of insiders. Garmin insiders have not made any purchases of sales so far this year. The most recent sales by insiders were by President and CEO Pemble, who sold 6,469 shares on June 22, and by General Manager Pao-Chang Huang, who sold 7,890 shares on May 19.
Considering these, let’s view the latest smart money activity regarding Garmin Ltd.
How are hedge funds trading Garmin Ltd. (NASDAQ:GRMN)?
When looking at the hedgies followed by Insider Monkey, Joel Greenblatt‘s Gotham Asset Management had the most valuable position in Garmin Ltd. (NASDAQ:GRMN), owning 1.51 million shares worth close to $71.8 million, corresponding to 0.5% of its total 13F portfolio. The second-most bullish hedge fund manager was Select Equity Group, managed by Robert Joseph Caruso, which held a $39.8 million position in 838,402 shares; the fund had 0.4% of its 13F portfolio invested in the stock. Alternative hedgies that were bullish included Cliff Asness’ AQR Capital Management, and David Harding’s Winton Capital Management.
Since Garmin Ltd. (NASDAQ:GRMN) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there were a few fund managers that elected to cut their entire stakes in the first quarter. Intriguingly, John Armitage‘s Egerton Capital Limited said goodbye to the largest investment of the “upper crust” of funds tracked by Insider Monkey, selling 879,104 shares valued at an estimated $46.44 million. Malcolm Fairbairn’s fund, Ascend Capital, also sold off its 755,913 shares, about $39.93 million worth.
The bearish sentiment from hedge funds should be enough to discourage, or at least make potential investors think twice, about investing in this stock. The gloomy revised guidance from the firm is even more reason to not be long on Garmin Ltd. (NASDAQ:GRMN) at this time, even on the dip today.
Disclosure: None
