These 5 Stocks Were Dumped by Prominent Hedge Funds in Q1

While it may seem logical for an everyday investor to go long in a company that many hedge funds are bullish on, it is less obvious to steer clear of businesses that have fallen out of favor among these investment firms, namely because that data is harder to come by. That’s where we come in. In order to provide some clarity and certainty on this matter, we  have formulated a list of five stocks that were summarily ejected from the portfolios of prominent hedge funds during the first quarter, including Dan Loeb‘s Third Point, David Tepper’s Appaloosa Management LP, Seth Klarman’s Baupost Group, and Nelson Peltz‘s Trian Partners. In this article, we’ll try to gauge why these large positions in popular stocks were closed by top hedge funds, using various analytical tools.

At Insider Monkey, we track nearly 800 hedge funds and other institutional investors as part of our small-cap strategy, which can help a retail investor beat Mr. Market by nearly one percentage point per month (see the details). Additionally, we can use the data to see how hedge funds collectively positioned themselves in different companies.

Morgan Stanley (NYSE:MS)

To begin with, Third Point sold off its 3 million-share position in Morgan Stanley during the first quarter. Considering that Morgan Stanley (NYSE:MS)’s stock has cratered by more than 31% in the last 12 months, Third Point’s move isn’t necessarily a surprise. However, shares are currently trading below the tangible book value of the company, and while the bank holding company’s EPS is expected to remain flat for the third year in a row in 2016, there are expectations for a lift-off in 2017. The short interest in Morgan Stanley was fairly small at the end of April, covering just 0.89% of the company’s float. Clint Carlson‘s Carlson Capital slashed its holding in Morgan Stanley (NYSE:MS) by 38% to 2.25 million shares during the March quarter.

Micron Technology, Inc. (NASDAQ:MU)

Next up is the eviction of 1.00 million Micron Technology shares from Seth Klarman‘s fund. Baupost initiated a position in Micron Technology, Inc. (NASDAQ:MU) during the second quarter of 2013, with the holding totaling 41.5 million shares at that time. Hurt by oversupply in the DRAM and NAND markets, Micron Technology, Inc. (NASDAQ:MU)’s stock has plummeted by 63.5% over the last 12 months, while the short interest in the stock still stood at 5.7% of its outstanding float at the end of April. However, some analysts believe that the stock price is close to a trough, with little or no further downside. Positive news for Micron came late last month when rival SK Hynix said that it anticipates roughly 15% growth in its shipment of DRAM products during the second quarter. Ray Dalio’s Bridgewater Associates also believes that a turnaround might be around the corner for Micron Technology, Inc. (NASDAQ:MU), as it hiked its stake in the company by more than five-fold, to 2.26 million shares during the January-to-March period.

We’ll discuss three more first quarter moves out of stocks on the next page.

Priceline Group Inc (NASDAQ:PCLN)

Appaloosa’s decision to dump 110,010 shares of Priceline is perhaps less obvious than the previous two moves, which were underpinned by plummeting stock prices. In fact, it’s likely that the company has reached the pinnacle of its valuation that Mr. Tepper’s firm decided to part ways with the stock. Priceline Group Inc (NASDAQ:PCLN)’s shares are trading nearly sideways on a year-to-date basis and are up by a little over 7% in the last 12 months. Priceline did manage to beat both the top and bottom-line expectations with its first quarter financial results and expects the trend to continue in the second quarter, with room nights booked to increase by roughly 15%-to-22% year-over-year and total gross travel bookings to increase by 11%-to-18%. Tiger Global Management, which is led by Chase Coleman, cut its stake in Priceline Group Inc (NASDAQ:PCLN) by 28% to about 551,000 shares during the first trimester.

United Continental Holdings Inc (NYSE:UAL)

Appaloosa Management initiated a holding in the $15 billion airline company during the fourth quarter of 2009, and more than six years later, wiped out the remaining 600,985 shares of the stock from its equity portfolio during the first quarter. United Continental Holdings Inc (NYSE:UAL) has seen its stock price depreciate by more than 22% so far this year, with the company’s first quarter top-line figure of $8.19 billion not only missing estimates by $20 million, but also marking a slide of 4.9% from the same quarter a year earlier. Consequently, passenger revenue per available seat mile was 7.4% lower on a year-over-year basis. Thomas E. Claugus’ GMT Capital cut its stake in United Continental Holdings Inc (NYSE:UAL) by 7% in the first three months of this year, to 5.58 million shares.

PepsiCo, Inc. (NYSE:PEP)

Lastly, Trian Partners dumped its 18.32 million PepsiCo shares during the March trimester. The carbonated soft drinks industry is up by a meager 0.1% so far this year, but PepsiCo, Inc. (NYSE:PEP)’s shares are standing tall, with gains of 4.2% during the same period. Considering the extremely small short interest in the stock and an earnings beat by Pepsi in the first quarter, the disposal of the holding by Trian can’t be blamed on weakness in its results or flagging investor sentiment towards it. The activist investor did take advantage of the stock doubling in value since its position in it was initiated in March 2013, even though PepsiCo’s management didn’t give in to Trian’s demands that its beverage and snacks units be spun off. Cliff Asness’ AQR Capital Management was bullish on PepsiCo, Inc. (NYSE:PEP) during the first quarter, boosting its stake by 13% to 4.63 million shares.

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