What Effect Will Last Night’s Developments Have On These Stocks?

As has been the case for the past few weeks, the equity markets on Monday experienced a relatively volatile session. However, there were  three companies whose stocks were relatively calm during the trading hours, but made big moves after the market closed. In this article we are going to take a closer look at the reasons why these stocks had noteworthy movements during the after-hours session yesterday and try to figure out if those reasons could have a meaningful impact on their respective stocks today and in the near future.

First up is the stock of Minnesota-based concentrated potash manufacturer Mosaic Co (NYSE:MOS). After losing 7.5% in the final three trading sessions of last week, the stock again took a beating yesterday in the after-hours session after Mosaic Co (NYSE:MOS) lowered its sales outlook, announcing that it will cut its potash production and maintain the pace of its reduced phosphate output. For the third quarter, the company now expects potash volumes to be in the bottom half of the 1.6 million-to-2.0 million tonnes guidance range it had provided earlier. Excluding the rapid rise and fall during the first three months of the year, the stock of Mosaic Co (NYSE:MOS) remained range-bound throughout much of the year, but since August has drifted lower and currently trades with a year-to-date loss of more than 20%. Eight out of the ten largest shareholders of the company among the funds we track either initiated their stake in it during the April-June period or increased their stake in it during that period. Phill Gross and Robert Atchinson‘s Adage Capital Management continued to remain the largest shareholder of the company by nearly doubling its stake to almost 4.0 million shares during the second quarter.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated ten percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by over 60 percentage points (118% return vs. S&P 500’s 57.6% gain) over the last 36 months (see the details here).

Moving on, restaurant chain Jack in the Box Inc. (NASDAQ:JACK) announced on Monday after the market close that its Board of Directors has authorized $200 million for a stock buyback program that will start in fiscal year 2016 and expire in November 2017. Following this announcement, the stock of the company rose rapidly during the after-hours session. Although the shares of Jack in the Box Inc. (NASDAQ:JACK) nearly quadrupled from the beginning of 2012 to early-2015, they have lost almost 25% from the all-time high they made earlier this year and currently trade down by 5% year-to-date. During the second quarter when the stock lost almost 8%, the number of hedge funds covered by us that were long in the stock came down by four to 35. However, the aggregate value of hedge funds’ holdings in Jack in the Box Inc. (NASDAQ:JACK) increased by $10.2 million during the same period to $377.84 million. Israel Englander‘s Millennium Management was the largest shareholder of the company at the end of second quarter, owning 976,747 shares.

Finally, shares of Walt Disney Co (NYSE:DIS) lost some sheen in the after-hours session yesterday after it came to light that the company would be laying off between 200-to-300 employees at its most profitable unit, ESPN, in the coming months. The last time employees were laid off at ESPN was in 2013. According to experts, more layoffs are in the cards for ESPN employees in the near future, as Walt Disney Co (NYSE:DIS) has asked ESPN to reduce its budget by $100 million in 2016 and by $250 million in 2017. Owing to the over 30% rise that shares of Walt Disney Co (NYSE:DIS) had between February and July of this year, they are still trading up by 9.16% for the year even after suffering a big decline in the last six weeks. Most analysts that cover the stock continue to be bullish on it. On September 2, analysts at CLSA initiated coverage on the stock with an ‘Overweight’ rating and a $114 price target, representing upside potential of about 12%. Jacob Rothschild‘s RIT Capital Partners was one of the hedge funds that initiated a stake in the company during the second quarter, and held 509,000 shares at the end of June.

Disclosure: None