The Shoddy Results That Have These Four Stocks Plunging Today

The shareholders of CIT Group Inc. (NYSE:CIT), AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG), Avis Budget Group Inc. (NASDAQ:CAR), and Louisiana-Pacific Corporation (NYSE:LPX) can’t be overly pleased with the performance of their investments today, as the value of their stocks are plunging for various reasons. Let’s take a closer look at the downside catalysts and analyze what hedge funds think of them long-term.

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Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.7% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

CIT Group Inc. (NYSE:CIT) is off by 2.78% in afternoon trading after reporting third quarter earnings of $0.80 per share on revenues of $520.9 million this morning, the latter up by 33.8% year-over-year. The dip comes despite the base results beating estimates by a solid $0.09 per share in earnings and  $0.54 million in revenues. The company’s financing and leasing assets in the North America Banking and Transportation & International Finance division grew by 3% quarter-over-quarter, while management returned nearly $170 million of capital back to shareholders during the quarter. The company also closed the OneWest Bank acquisition, which added $20 billion in assets and $14 billion in deposits. Tier 1 common ratio was 12.4%. Despite the selloff, this wasn’t a bad quarter. If management can realize better-than-expected value from strategic alternatives over its $10 billion Commercial Air business, look for shares to rally. Of the 730 elite funds that we track, 33 of them owned $1.09 billion of CIT Group Inc. (NYSE:CIT)’s shares, representing 13.50% of the float, on June 30. Keith Meister’s Corvex Capital owned 1.52 million CIT shares at the end of June.

AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) shares are down by 18.85% after reporting third quarter earnings of $1.02 per share on revenues of $103.47 million, up by 339.9% year-over-year, though the results nonetheless missed estimates by $0.19 per share and $10.41 million, respectively. Guidance was also a bit soft, with management expecting non-GAAP net income of $165 million-to-$180 million on revenues of $425 million-to-$450 million, versus the previous guidance of $180 million-to-$195 million in income on revenues of $395 million-to-$430 million. Makena’s net sales were $65.2 million in the quarter, up by 36% year-over-year, although future growth for the company’s number one product may be harder to come by given the increased regulatory attention on drug prices. Hedge funds we follow were bullish on AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) in the second quarter, with 29 of them owning 29.80% of the company’s common stock at the end of June, valued at $628.06 million.

On the next page, we examine why Avis Budget and Louisiana-Pacific Corporation are lower in afternoon trading. 

Avis Budget Group Inc. (NASDAQ:CAR) is off by 12.5% after reporting third quarter earnings of $1.98 per share on revenues of $2.58 billion, missing expectations by $0.04 per share and $20 million, respectively. Guidance was a little soft, with management expecting 2015 EPS of $3.10-to-$3.25 versus expectations of $3.36 per share, and revenue growth of 1% versus estimates of 1.3%. The company spent $161 million to buy back 3.7 million shares in the quarter and will spend more than $300 million in 2015 buying back shares. The strong dollar is still weighing on earnings, although the big buybacks should firm up EPS. Hedge funds are bullish, as 51 funds owned $2.37 billion of Avis Budget Group Inc. (NASDAQ:CAR)’s shares, representing a massive 51.00% of the float, on June 30, with Karthik Sarma‘s SRS Investment Management among them with a holding of 10.0 million shares.

Louisiana-Pacific Corporation (NYSE:LPX) is down by 4.32% after reporting a third quarter loss of $0.12 per share on revenues of $465 million (down by 10.2% year-over-year), missing expectations by $0.05 per share and $42.49 million, respectively. Revenue from the company’s oriented strand board division declined by 14% year-over-year while sales from the engineered wood products segment inched down by 4% year-over-year. Given the strong U.S economy and solid housing market, management is still optimistic, however. If housing starts pick up, look for shares to rally. According to our data, 16 funds owned $425.04 million worth of Louisiana-Pacific Corporation (NYSE:LPX)’s shares on June 30, with Jeffrey Altman‘s Owl Creek Asset Management among the bulls, with a holding of 4.67 million shares.

Disclosure: None