While Wall Street rallied into green territory from the opening bell on Monday, Dillard’s Inc. (NYSE:DDS), Marriott International Inc. (NASDAQ:MAR), Starwood Hotels & Resorts Worldwide Inc. and Clovis Oncology Inc. (NASDAQ:CLVS) floundered in the red amid news of an earnings miss, a merger, and a possible delay in the regulatory approval for a new drug. We’ll take a look at these developments as well as the hedge fund sentiment towards each of these stocks.
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Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% over the last 38 months and outperformed the S&P 500 Index by 53 percentage points (see the details here).
Dillard’s Inc. (NYSE:DDS) has dropped today on above-average trading volume after reporting lower net sales of $1.43 billion for the third quarter of 2015, compared to $1.46 billion for the third quarter of 2014. The fashion apparel, cosmetics and home furnishings retailer said its sales in comparable stores for the period decreased by 4% year-over-year. Meanwhile, its net income slipped to $45.7 million, or $1.19 per share, compared to $55.2 million, or $1.30 per share in the same period last year.
“We are disappointed with our third quarter sales performance and in the resulting decline in profit. Share buyback remained a high priority, and we repurchased $175 million of stock under our share repurchase program,” Dillard CEO William Dillard II said.
During the quarter, the company bought $174.6 million of class A common stock under its $500 million share repurchase program. As of October 31, authorization of $117.5 million remained under the program, according to the company’s earnings release. At the end of June, 27 hedge funds out of the 730 in our database held 7.50% of the company’s outstanding stock.
We delve into the news surrounding Marriott and Starwood’s merger on the next page.
Marriott International Inc. (NASDAQ:MAR) and Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT) saw their shares fall after entering into a $12.2 billion merger agreement, which is expected to “deliver significant capital returns to shareholders.”
At the closing of the multiple step transaction, Starwood Hotels & Resorts Worldwide shareholders will receive 0.92 shares of Marriott International’s class A common stock and $2.00 in cash for each share of Starwood’s common stock. The merger will see the combined companies operate a portfolio of over 5,500 hotels all over the world.
Marriott International expects the transaction to be earnings accretive by the second year after the merger, not including the impact of transaction and transition costs. “This greater scale should offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth and enhance long-term value to shareholders,” Marriott International President and CEO Arne Sorenson said.
At the end of June, 31 funds in our database held 2.50% of Marriott International Inc.’s (NASDAQ:MAR) outstanding stock, while 62 funds held 28.40% of Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT)’s common shares.
Biopharmaceutical company Clovis Oncology Inc. (NASDAQ:CLVS) has plunged by 67.67% following another delay in the review process for its lung cancer drug after the U.S. Food and Drug Administration requested more clinical data concerning it.
“We remain confident in rociletinib and its potential to treat patients with mutant EGFR T790M-positive lung cancer,” President and CEO Patrick Mahaffy said. “We will continue to work diligently with the FDA on our NDA submission.”
The additional review could lead to an extension of the company’s March 30, 2016 Prescription Drug User Fee Act (PDUFA) date. By the end of June, 29 funds in our database held 28.90% of the Clovis Oncology Inc. (NASDAQ:CLVS)’s outstanding stock.
Disclosure: None
