How Do Hedge Funds View These 3 Downgraded Stocks?

Shares of Illumina, Inc. (NASDAQ:ILMN), Crocs, Inc. (NASDAQ:CROX) and AGCO Corporation (NYSE:AGCO) are lower after analysts downgraded each company. Illumina is down by 7.8%, Crocs is lower by 9.8%, and AGCO is off 7.2% in morning trade as the downgrades weigh on supply and demand. Let’s take a closer look at the three stocks and see if the world’s greatest investors disagree with analysts on any of them.

In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 700 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 118% since the end of August 2012 and beat the S&P 500 Index by 60 percentage points (see more details here).

Analysts at Leerink downgraded Illumina, Inc. (NASDAQ:ILMN) to ‘Market Perform’ from ‘Outperform’ and lowered their target price to $185 from $225. The analysts think the risk/reward is “less compelling over the next 12 months”. They like Illumina’s nextgen sequencing technology, but they consider that the company lacks meaningful upside growth catalysts over the next year. Shares of the biotech company had been off 4.7% year-to-date before the downgrade.

However, hedge funds are bullish on Illumina, Inc. (NASDAQ:ILMN). Of the funds from our database, 64 funds owned $3.94 billion worth of the company’s shares (representing 12.50% of the float) on June 30, versus 75 funds and $3.63 billion respectively a quarter earlier. Stephen Mandel‘s Lone Pine Capital increased its position by 97% to 5.68 million shares, while Philippe Laffont’s Coatue Management boosted its stake by almost a sixfold to 658,493 shares. David Goel and Paul Ferri’s Matrix Capital Management kept its position the same at 500,000 shares. Just 3.5% of the float is short.

Analysts at Piper Jaffray cut their rating on Crocs, Inc. (NASDAQ:CROX) to ‘Neutral’ from ‘Overweight’ and reduced their price target to $12 from $17, saying that the stock ‘will likely be dead money for the foreseeable future until [they] gain more concrete evidence of sales acceleration’. Crocs slashed its sales estimates on its analyst day on Wednesday. Shares of the former fad stock were up 3.5% year to date before the update from the analysts.

Hedge funds are mixed on Crocs, Inc. (NASDAQ:CROX), since 23 funds owned $120.82 million of the company’s shares (representing 10.70% of the float) at the end of June, versus 17 funds holding stakes worth $130.16 million three months earlier. Among them, Orlando Muyshondt‘s Tyrian Investments established a new position of 1.66 million shares, while Jeffrey Jacobowitz’s Simcoe Capital Management increased its stake by 1% to 783,243 shares. Steve Cohen’s Point72 Asset Management decreased its holding by 71% to 608,755 shares, while Thomas Ellis and Todd Hammer’s North Run Capital pruned its position by 20% to 1.05 million shares too. Currently, around 16% of Crocs’ float is short.