Investor Confidence Is Turning Sharply Against These 2 Stocks

Two stocks were downgraded by analysts this morning amid perceived weakness in their industries or their position within those industries, with each of the downgrades hitting stocks that elite investors were also selling out of during the second quarter. We’ll take a look at the latest analyst and hedge fund action on Applied Materials Inc. (NASDAQ:AMAT) and FireEye Inc (NASDAQ:FEYE) and see what the future holds for these two companies and their stocks.

Let’s start with Applied Materials Inc. (NASDAQ:AMAT), which was downgraded by RBC Capital Markets to ‘Underperform’ from ‘Sector Perform’. RBC also cut its price target to $12 from $16, suggesting downside potential of nearly 20%. RBC analyst Mahesh Sanganeria cited declining DRAM and NAND spending for the downgrade, predicting CapEx declines of 38% and 17% for DRAM and NAND respectively in 2016. After gapping open lower at the start of trading this morning, Applied Materials has quickly rebounded to sit slightly in the green today.

Goldman Sachs believes that CapEx decline predictions are overdone, predicting flat or even as much as 10% gains between the DRAM and NAND segments in 2016. The investment bank recently reiterated its ‘Buy’ rating for Applied Materials Inc. (NASDAQ:AMAT) with a $22 price target and has the stock on its ‘Conviction Buy’ list.

The smart money tracked by Insider Monkey however appears to be leaning in RBC’s direction, as they pulled a good deal of capital out of the stock in the second quarter, as they did many semiconductor stocks. 65 investment firms we track held $2.47 billion in the company’s shares on June 30, which still amounted to 10.50% of its outstanding shares. However, the figures were down heavily from 81 firms holding $4.36 billion in shares just three months earlier. While shares were down by nearly 15% in the second quarter, it doesn’t nearly account fully for the 43% decline in the aggregate value of these firms’ holdings.

Billionaire Larry Robbins of Glenview Capital held the largest position in Applied Materials, consisting of 21.28 million shares worth nearly $409 million. Billionaire David Einhorn, a major investor in Micron Technology, Inc. (NASDAQ:MU), also added a new position in Applied Materials to his portfolio, of an even 8.0 million shares.

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FireEye Inc (NASDAQ:FEYE) meanwhile was downgraded to ‘Neutral’ from ‘Overweight’ by Piper Jaffray, which also slashed its price target on the stock to $37 from $60, which nonetheless still represented upside potential of over 10% from Friday’s closing price. Regardless, shares have tumbled by 5.70% in morning trading on the downgrade, as Piper Jaffray cited concerns over increased competition for the cybersecurity firm, including the fact that the top four cybersecurity vendors now have their own sandbox security technology. Piper Jaffray also expressed concern over the recent executive departures at the firm, which includes Chief Financial Officer Mike Sheridan and Chief Technology Officer Greg Day.

Hedge funds tracked by Insider Monkey were also moving out of FireEye Inc (NASDAQ:FEYE) with some conviction during the second quarter, as the number of investors with positions fell to 35 from 43, while the aggregate value of their positions dropped to $420 million from $573 million, despite the stock actually making strong gains of nearly 25% during the second quarter. That dropped their ownership of the stock down to 5.50%, a decline of over 40%. Karthik Sarma’s SRS Investment Management maintained a positive outlook on FireEye, slightly bulking up its position to over 3.29 million shares. On the other hand, John Thaler’s JAT Capital Management hastily closed its position of 1.74 million shares which it had just opened in the first quarter.

Disclosure: None