Hedge Funds Beat Analysts On Seeing Weakness In Mattel And Caterpillar, But They Disagree On Blackberry

Red flags were thrown up by analysts today regarding the prospects of three companies, each of which had their earnings estimates and price targets cut amid slowing growth. The companies are Blackberry Ltd (NASDAQ:BBRY), Mattel, Inc. (NASDAQ:MAT), and Caterpillar Inc. (NYSE:CAT), and we’ll study the analyst action on each as well as the sentiment that elite hedge funds have for the three public companies’ shares.

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Let’s start with Blackberry Ltd (NASDAQ:BBRY), which remains a popular and even iconic company for its once-dominant position in the smartphone market, even as that buffet of a position has since eroded into the table scraps left behind by Apple Inc. (NASDAQ:AAPL)’s iPhones and Google Inc (NASDAQ:GOOG) Android-powered devices. Analyst pessimism towards Blackberry has been in full force since the company’s latest earnings results were released last week.

Credit Suisse, Wells Fargo, UBS, and Goldman Sachs have all cut either their earnings estimates or price targets for the company, or both. Goldman cut its price target for the stock to $7, while UBS cut its to $6.50. Credit Suisse’s price target is even slimmer at $6, although that wasn’t changed during its most recent update on Blackberry. Instead it cut its revenue and earnings estimates for the Canadian company’s 2016 and 2017 fiscal years, the former of which is now halfway done. Wells Fargo also cut its price target on Blackberry, to between a range of $6.50 and $7.10, and lowered its earnings estimates for its 2017 fiscal year to a loss of $0.17 per share. Perhaps most troublesome is that despite a slew of recent acquisitions, Credit Suisse predicts a large drop in revenue to just $434 million in fiscal 2017 from its $793 million projections for Blackberry’s fiscal 2016. Blackberry is down by over 5% today amid the continued ill will among analysts, dragging its year-to-date losses to over 43%.

The smart money tracked by Insider Monkey doesn’t think nearly as ill of Blackberry Ltd (NASDAQ:BBRY) as analysts, owning 15.10% of its outstanding shares. While the number of investors with Blackberry positions did decline to 23 from 27 in the second quarter, the value of their holdings was up by $30 million to $653 million, despite a 10% drop in share price during that time. So the investors who believe in the company hunkered down and fortified their positions. Among them was Kahn Brothers, founded by the late Irving Khan, and Nelson Obus’ Wynnefield Capital, each of which added to their positions in the second trimester.

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Mattel, Inc. (NASDAQ:MAT) is not nearly as maligned as Blackberry among analysts. Oppenheimer reiterated its ‘Outperform’ rating on the stock, though it did lower its price target on it to $27. The firm also lowered its earnings projections for Mattel, though primarily due to the strong U.S dollar. Mattel had previously announced that foreign exchange would hurt its revenue growth by between 4% and 6% this year. Mattel is now down by 30% in 2015 given its 4% loss in trading today, hurt by the company’s second quarter results released in July which revealed a loss of $11.4 million and a continued sales decline for the company’s Barbie dolls.

Hedge funds appear to have been predicting the poor performance of Mattel, Inc. (NASDAQ:MAT), as they were quite bearish on the company in the second quarter, with ownership declining to 23 from 26, and the value of their holdings falling by over $100 million to $270 million despite a rise of over 10% in the stock’s price, and they held just 3.10% of its shares on June 30. Shares have slid by about 15% since the end of June, so hedgies were cashing out at the right time. Glenn Russell Dubin’s Highbridge Capital Management and Paul Tudor Jones’ Tudor Investment Corp were among those cashing out of the stock.

Lastly is Caterpillar Inc. (NYSE:CAT), the shares of which are down by over 2% today and by more than 30% year-to-date. Analysts at Jefferies lowered their price target on the stock to $63, right around the level they’re currently trading, and have a ‘Hold’ rating on it. Deutsche Bank also lowered its price target on the stock, though to a much healthier $80, while William Blair analysts downgraded it to ‘Market Perform’ from ‘Outperform’.

The tumble today follows a steep slide on Thursday following the announcement that Caterpillar Inc. (NYSE:CAT) would layoff 10,000 employees. While layoffs are many times seen in a positive light by the market, as a means of cutting costs and improving operational efficiency, these particular layoffs were not received thusly, given their correlation with weak demand in Caterpillar’s heavy machinery and other segments.

Hedge funds were generally bearish towards Caterpillar, as while ownership increased to 30 from 28 during the second quarter, the value of their holdings dipped to $1.36 billion from $1.46 billion despite a 6% rise in the price of the stock during the April-to-June period. So much like with Mattel, hedgies appeared to be cashing out at the right time on strength in the stock, before an eventual third quarter collapse. In Caterpillar’s case, shares are down by about 25% in the third quarter. Michael Larson’s Bill & Melinda Gates Foundation Trust was not one of the investment firms abandoning the stock, as it held on to a position of 11.26 million shares, its third-largest holding.

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