Is the Market Overreacting to the News that Sent These Four Stocks Lower Today?

With markets inching down on Monday, several stocks dropped below the average on the back of various news. Among the top losers at the beginning of the week are Hasbro, Inc. (NASDAQ:HAS) and NutriSystem Inc. (NASDAQ:NTRI), after the former reported its financial results and the latter slipped amid Oprah Winfrey acquiring a 10% stake in its rival Weight Watchers International, Inc. (NYSE:WTW). In this article we will take a closer look at the news that caused these two stocks to fall today in addition to two other notable losers. Aside from the news, we will also see if the hedge funds tracked by Insider Monkey are betting on their long-term growth, which could suggest that their fall represents an attractive entry point.

Rawpixel / shutterstock.com

We think that hedge fund sentiment is an important metric to look at while analyzing a stock, because this type of investor is focused on the long-term prospects and spends an enormous amount of resources picking its next investment. This makes them the perfect investors to emulate, which is supported by our backtests. Our focus is the small-cap picks of a group of over 700 elite hedge funds and our research showed that the 15 most popular picks in this space can outperform the market by double digits each year. Our strategy follows these stocks and it has generated returns of 102% in the last three years, beating the S&P 500 ETF (SPY) by some 53 percentage points (see more details here).

With this in mind, let’s start with our list of Monday losers. Hasbro, Inc. (NASDAQ:HAS)‘s stock has slid by over 7% so far today, after the company reported a flat net revenue of $1.47 billion for the third quarter, slightly below estimates of $1.48 billion. Its adjusted earnings, on the other hand, came in at $1.58 per share, beating the consensus estimate of $1.52. The market was disappointed by a decline in sales of some toys, such as a 28% drop in the toys for girls category. However, the company might still have strong sales in the next quarter, which will include the holiday season and will coincide with the release of the new “Star Wars” movie scheduled for December.

Among smart money investors that we track, Hasbro, Inc. (NASDAQ:HAS) remains an unpopular pick, as the company faces a decline in sales amid the advancement of tablets and gadgets, which consumers are transitioning towards from traditional toys and games. A total of 20 funds from our database held stakes equal to just 2.30% of Hasbro’s outstanding stock at the end of June. Its main competitor Mattel is not doing much better, being included in the 13F filings of only 23 funds with positions representing 3.10% of the company’s shares. However, Hasbro’s two largest shareholders in our database, David Harding‘s Winton Capital Management and Joel Greenblatt’s Gotham Asset Management raised their stakes by 20% and 184% to 555,800 shares and 482,900 shares, respectively.

NutriSystem Inc. (NASDAQ:NTRI) is down by almost 8% without any direct news related to the company. However, earlier today, it was announced that media mogul Oprah Winfrey took a 10% stake in NutriSystem’s competitor Weight Watchers International and obtained a seat on the company’s board. The stock of Weight Watchers has almost doubled so far today on the back of Oprah’s endorsement of the financially struggling company.

However, among the hedge funds from our database, NutriSystem Inc. (NASDAQ:NTRI) represents a more popular choice, with 24 funds reporting long positions as of the end of June, as compared to just nine investors for Weight Watchers. Moreover, during the second quarter, the number of investors bullish on NutriSystem went up by four, while in WeightWatchers this number was halved. And finally, the funds from our database held over 17% of NutriSystem’s outstanding stock, as compared with 6.7% for WeightWatchers, whose market cap is also around half of NutriSystem’s.

Take a glimpse at the two additional mystery losers on the following page.