What Is Going On With These Falling Stocks?

At a time when the S&P 500 is down by over 1% as valuation and rising interest rates weigh on investor’s minds, shares of Alibaba Group Holding Ltd (NYSE:BABA), Frontier Communications Corp (NASDAQ:FTR), Chesapeake Energy Corporation (NYSE:CHK), and Southwestern Energy Company (NYSE:SWN) are off even more. Let’s examine why investors are selling each stock.

In addition, let’s also see what the world’s greatest investors think of the four stocks. In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 730 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points (see the details here).

Leading the way on our list of red stocks is Alibaba Group Holding Ltd (NYSE:BABA). Shares of the Chinese e-commerce company are down 4.25% given the recent news that Guo Guangchang, the billionaire chairman of Fosun Group, has been unreachable since yesterday afternoon. Many investors consider Guo Guangchang to be China’s version of Warren Bufett, and Guo’s potential detainment for questioning or otherwise shows that no private sector investor or executive is off limits to the country’s authorities (and crackdown on corruption). The sell off in Alibaba Group Holding Ltd (NYSE:BABA) shares may be unwarranted however, as Jack Ma is on friendly terms with President Xi Jinping.

In other news, Alibaba recently announced that it will acquire South China Morning Post and other media assets. South China Morning Post is a 112 year-old Hong Kong English language newspaper and the acquisition further diversifies Alibaba. Of the around 730 elite funds we track, 60 funds were long Alibaba in the third quarter, down from 85 funds in the second quarter.

Moving on, Frontier Communications Corp (NASDAQ:FTR) has lost 4% as investors wonder whether the company can sustain its dividend yield of 8.61%. USA Today noted that the provider of telecom services had only $504 million in free cash flow in the last twelve months, barely enough to cover the company’s dividend cost of $500 million. If demand goes south or Frontier needs to spend more on capital expenditures, the company may need to borrow expensive money to sustain its dividend. Nevertheless, the dividend worries could be too soon, as Frontier hasn’t cut its dividend in four years and demand has been stable. A total of 33 elite funds were long about 8.1% of Frontier Communications Corp (NASDAQ:FTR)’s float at the end of the third quarter.

On the next page, we examine why Chesapeake Energy and Southwestern Energy are off.

The natural gas sector continues to bleed as Chesapeake Energy Corporation (NYSE:CHK) and Southwestern Energy Company (NYSE:SWN) have lost another 7% and 10% today on the back of declining natural gas prices. The price of the near-month natural gas contract breached the $2 per thousand cubic feet level for the first time this year. Earlier in the week, legendary natural gas traded John Arnold tweeted:

“With few hedges for ’16, half of US energy industry will be bankrupt in 6 months with prices at these levels. OPEC definitely smells blood.”

John Arnold averaged triple digit returns in the 2000’s when he ran Centaurus Advisors before hanging it all up several years ago to focus on philanthropy. Plenty of smart money fund managers still believe in Chesapeake Energy Corporation (NYSE:CHK), however, as Carl Icahn’s Icahn Capital LP reported owning a stake of 73.05 million shares in the company at the end of September. In addition, the number of elite funds long Southwestern Energy Company (NYSE:SWN) increased by 5 to 38 during the third quarter. Those funds collectively own around 11.7% of Southwestern Energy’s float.

Disclosure: None