Three actively-traded stocks are all down this morning on high trading volume, especially when it comes to Avon Products, Inc. (NYSE:AVP), which has fallen by 14% so far this morning after it was revealed last night that the beauty products company is negotiating to sell a stake of itself to a private equity firm. We’ll look at Avon and two other stocks in this article, including the most shorted one on the NASDAQ in the second half of August.
evgeny varlamov / Shutterstock.com
Let’s continue on with Avon Products, Inc. (NYSE:AVP), which famously operates entirely through a network of direct sellers, who once upon a time roamed the streets of the nation door-by-door in search of sales, but have increasingly been using the internet to drive customer interaction in recent years. Nonetheless, Avon’s internet sales growth has not been overly strong, which has led to an erosion in its overall sales for years. The news that Avon, which was trying to find a buyer, is being forced to consider selling a stake to interested private equity firms, which reportedly includes Stephen Feinberg’s Cerberus Capital Management, means the company was unsuccessful in finding a suitor. That news has not sat well with the market, pushing the stock down by 30% from the heights it reached early yesterday afternoon. A top small-cap value pick of Donald Yacktman, Avon Products, Inc. (NYSE:AVP) is now down by more than 62% year-to-date.
Whether or not hedge funds like a stock is an important metric to follow, because these large investors show a great level of skill and expertise when it comes to picking stocks. Over the last few years equity hedge funds have trailed the market by a large margin, but that’s mostly due to their hedging and short positions, which perform poorly in a bull market. Their long positions performed far better, especially their small-cap picks, which have the potential to beat the market by 95 basis points per month on average, as our backtests showed. Our small-cap strategy involves imitating a portfolio of the 15 most popular small-cap picks among hedge funds and it has returned 118% since August 2012, beating the S&P 500 ETF (SPY) by over 60 percentage points (read more details here).
Let’s move on to Williams Companies Inc (NYSE:WMB), which is continuing its inexorable slide of the past ten weeks today. Shares are down by another 5.15% on no noteworthy news, dragging them down to losses of nearly 26% in the third quarter. The results are doubtlessly a major disappointment for the hedge funds in our database, with which it ranked as their favorite large-cap public utilities stock and one of their favorite high dividend stocks. The only good news on the latter front is that the poor stock performance has hiked its dividend yield to 5.55%. 86 hedge funds in our database held $10.64 billion of the company’s stock on June 30, shortly after shares spiked to over $60 in late June after it rejected a $53.1 billion buyout bid from Energy Transfer Equity LP (NYSE:ETE). Keith Meister’s Corvex Capital held the largest stake in Williams Companies Inc (NYSE:WMB) at the end of the second quarter, a 41.68 million-share position worth over $2.39 billion.
Lastly we come to Frontier Communications Corp (NASDAQ:FTR), the stock alluded to in the opening that was the most-shorted on the NASDAQ between August 14 and August 31. 168.53 million of the company’s more than 1.17 billion shares were being shorted as of August 31, about 14.4% of its outstanding shares. The short positions are not yet paying off, as shares are up slightly in September, even after the 3.98% slide today, which coincides with the company going ex-dividend today. Frontier Communications Corp (NASDAQ:FTR) revealed this week that it would offer up to $6.6 billion in senior notes to help pay for its $10.5 billion acquisition of Verizon Communications Inc. (NYSE:VZ)’s wireline assets in Texas, California, and Florida. Moody’s was positive about the senior notes and Frontier Communications Corp (NASDAQ:FTR)’s enhanced scale, assigning a Ba3 rating to the unsecured notes, and saying in regards to its recent acquisition that it “will dramatically improve its scale and acquire valuable assets that are strongly positioned versus the incumbent cable competitors. “ Hedge funds we track were extremely bullish on Frontier in the second quarter, with ownership rising to 41 from 22, and aggregate holdings more than doubling in value to over $604 million, even though shares traded down heavily in the quarter. Adage Capital Management, Citadel Investment Group, and Seth Klarman’s Baupost Group were among the firms buying loads of Frontier shares during that time.
Disclosure: None
