Hedge Funds Like These Five Declining Stocks in Q4

Nothing differentiates the winners from the losers in the stock markets more than what they do when stock prices are crashing. Most legendary investors have built their fortunes by purchasing a stock when others were selling it, whereas a large number of retail investors have burnt their finger trying to chase a ‘high-flying’ stock. Keeping the quintessential stock market saying of ‘buy when others are selling, sell when others are buying’ in mind, we at Insider Monkey decided to compile a list of stocks that got brutally beaten during the third quarter, but at the same time saw their popularity increase among hedge funds. The top five stocks that made it to our list have all suffered losses of more than 20% during the third quarter, but were backed by at least 40 hedge funds at the end of September. Read further to know which stocks made the cut.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

#5 Huntsman Corporation (NYSE:HUN)

Investors with Long Positions (as of September 30): 45

Aggregate Value of Investors’ Holdings (as of September 30): $465.2 Million

Owing largely to the 25% drop that the stock Huntsman Corporation (NYSE:HUN) saw on a single day on September 28 after the company’s management issued an earnings warning, shares of the company ended the third quarter down by over 55%. However, several hedge funds saw this as a lucrative opportunity and the number of funds covered by Insider that disclosed owning a stake in the company jumped by 7 during the third quarter, though the aggregate value of investors’ holdings in it declined by more than half during the same period. Huntsman Corporation (NYSE:HUN)’s stock did managed to rebound in the fourth quarter, but still trades down 51.05% year-to-date. On Thursday, analysts at UBS AG reiterated their ‘Buy’ rating on the stock, but lowered their price target on it to $20 from $25. Billionaire Jim Simons‘ Renaissance Technologies initiated a stake in the company during the third quarter acquiring over 1.2 million shares.

#4 Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ)

Investors with Long Positions (as of September 30): 49

Aggregate Value of Investors’ Holdings (as of September 30): $483 Million

Healthcare was one of the most beaten down sectors in the third quarter, but hedge funds by and large held on to their conviction on the sector during that period. Shares of Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) lost 24.5% during the third quarter onslaught, but have recovered since then and now are trading with year-to-date losses of 13.11%. The number of hedge funds that had a stake in the company increased by 8 during the July-September period, but owing largely to the decline that the company’s stock had the aggregate value of investors’ hooldings in the company dropped by $281 million during the same period. On November 9 Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) reported its third-quarter results, declaring EPS of $2.52 on revenue of $340.90 million, while analysts had expected it to report EPS of $2.56 on revenue of $348.15 million. Billionaire Ken Griffin‘s Citadel Investment Group increased its stake in the company by 50% to 271,054 shares during the same period.

#3 United Rentals, Inc. (NYSE:URI)

Investors with Long Positions (as of September 30): 52

Aggregate Value of Investors’ Holdings (as of September 30): $783 Million

Although shares of United Rentals, Inc. (NYSE:URI) had started their downward journey in late-May itself, it was in the third quarter that they lost a hefty 31.5% and came down to levels last seen in 2013. Hedge funds made full use of this opportunity with the ownership of the company among funds covered by us rising by 8 during the that period. However, the aggregate value of investors’ holding in the company during the third quarter came down by 43.6%. Shares of United Rentals, Inc. (NYSE:URI) managed a recovery in fourth quarter, but are still trading down more than 26% year-to-date. On October 23, analysts at Barclays reiterated their ‘Overweight’ rating on the stock, while increasing their price target on it to $80 from $77. Richard Mcguire‘s Marcato Capital Management initiated a stake in United Rentals during the third quarter by purchasing over 2 million shares of the company.

#2 Caterpillar Inc. (NYSE:CAT)

Investors with Long Positions (as of September 30): 40

Aggregate Value of Investors’ Holdings (as of September 30): $1.82 Billion

Construction equipment manufacturing giant Caterpillar Inc. (NYSE:CAT) has had it pretty rough since the start of second-half of 2014. This year the company’s stock has followed a classic bearish trend line and till now has lost almost 25% of its market capitalization year-to-date. During the third quarter when the stock of the company slumped 22.2%, the number of hedge funds that were long  in it increased by 10 and the aggregate value of investors’ holding in the company saw a meager decline of 9%. On November 20 the company announced that it would be closing its undercarriage components facility in Danville. On November 23 analysts at Societe Generale reiterated their ‘Buy’ rating on Caterpillar Inc. (NYSE:CAT)’s stock, while upping their price target on it to $82 from $81. Billionaire David E. Shaw‘s firm, D. E. Shaw, was one of the hedge funds that increased its stake significantly in Caterpillar during the third quarter; it holds 728,650 shares of the company as of September 30.

#1 Apache Corporation (NYSE:APA)

Investors with Long Positions (as of September 30): 45

Aggregate Value of Investors’ Holdings (as of September 30): $1.33 Billion

The decline in crude oil prices took a serious toll on the shares of Apache Corporation (NYSE:APA) during the second and third quarter. However, its popularity among hedge funds climbed to new heights during the same period. While Apache Corporation (NYSE:APA)’s stock went down by over 30% during the third quarter, the number of hedge funds covered by Insider Monkey, that were long in it, increased by 13 during the same period. Moreover, Apache Corporation is also the only stock in this list, which not only saw the number of hedge funds that held stake in it increasing, but also the aggregate value of hedge funds’ holdings going up (by $27 million). The stock did manage to recover a bit during October and November, but have again started declining recently and now is trading down by 28.56% year-to-date. On November 9 Apache Corporation’s stock jumped by 10% after reports emerged that the company has received and rejected an acquisition offer from an unidentified buyer. On Wednesday, analysts at  Jefferies Group reiterated their ‘Underperform’ rating on the stock, but upped their price target on it to $43 from $49. With an ownership of over 13.44 million shares, William B. Gray‘s Orbis Investment Management was its largest shareholder at the end of September among funds covered in our database.

Disclosure: None