What Is Going On With These Falling Stocks?

At a time when the broader market is up almost 2%, shares of Cooper Companies Inc (NYSE:COO), Pandora Media Inc (NYSE:P), Rayonier Advanced Materials Inc (NYSE:RYAM), and NRG Energy Inc (NYSE:NRG) are heading the opposite way. In the following article, we will examine why investors are selling.

In addition, we will also examine relevant hedge fund sentiment toward the stocks. 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 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.6% 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).

First up is Cooper Companies Inc (NYSE:COO), whose stock is off more  9% after the company reported disappointing fourth-quarter results. For its latest quarter, the medical device manufacturer and markerter earned $2 per share on revenue of $455.54 million, missing estimates by $0.11 per share and $18.71 million, respectively. Total sales declined by 2.7% year-over-year. Cooper Companies Inc (NYSE:COO)’s full year 2015 results were a little bit better however, with revenue of $1.797 billion, up 4.6% year-over-year, and adjusted EPS of $7.44, up 2.1%. Management sees 2016 revenue of $1.834-$1.874 billion and adjusted EPS of $7.60-$7.90 per share. Despite the increasing EPS for 2016, market participants were expecting more than management’s guidance.

In other news, Pandora Media Inc (NYSE:P) is off 4% as investors continue to doubt the company’s prospects in the increasingly crowded streaming landscape that includes Apple Inc. (NASDAQ:AAPL), Spotify, and numerous internet startups. Shares of Pandora Media Inc (NYSE:P) are down 29% year-to-date and show no signs of a revival, particularly after the company reported disappointing fourth-quarter numbers and a quarter over quarter total listener hour drop. Pandora needs to get its listener hours up by offering new products, although the increasing competition may make it difficult for the company. The smart money we track is still optimistic, however, as 36 elite funds (out of the around 730 total) were long the stock in the third quarter, up from 30 funds in the second quarter.

On the next page, we examine why Rayonier and NRG Energy are down. 

Rayonier Advanced Materials Inc (NYSE:RYAM) fell by more than 11% after the analysts at RBC Capital Markets downgraded the company to ‘Underperform’ from ‘Sector Perform’. The analysts also cut their price target to $9 per share from $10 per share. Rayonier Advanced Materials Inc (NYSE:RYAM) shares have fallen over 45% year-to-date on bearish investor sentiment. Because of the decline, RYAM now trades for a modest 12 times forward earnings. A total of 20 elite funds were long RYAM in the third quarter, up from 16 funds in the second quarter.

Not to be left out, NRG Energy Inc (NYSE:NRG) shares retreated by another 17% on Friday as the stock remains volatile after the power company’s CEO David Crane resigned on Thursday. Crane has run NRG Energy Inc (NYSE:NRG) since 2003 and will be replaced by former COO Mauricio Gutierrez. NRG shares were down 58% year-to-date before today’s news due to its rising cost of capital. Despite the poor performance, the hedge fund interest in NRG Energy remained steady, with 31 funds long the stock at the end of September, unchanged from the number of funds long the stock at the end of June. Among the bullish funds is George Soros’ Soros Fund Management, with a stake of 4.32 million shares.

Disclosure:None