What Is Going On With These Four Falling Stocks?

On the first full trading day after the Federal Reserve raised interest rates by 0.25%, all three indexes are in the red as the strength in financials fail to offset weakness elsewhere. Among the stocks in the red are Pier 1 Imports Inc (NYSE:PIR), Polaris Industries Inc. (NYSE:PII), Cliffs Natural Resources Inc (NYSE:CLF), and Barrick Gold Corporation (USA) (NYSE:ABX), whose shares are off more than most. In this article, we will take a closer look at each stock.

Moreover, we will also examine relevant hedge fund sentiment toward the equities. We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

Investors aren’t happy with Pier 1 Imports Inc (NYSE:PIR) this morning, as shares of the home furnishings and furniture specialty retailer are 18.6% below yesterday’s close. Investors are selling because the company’s third-quarter revenue missed analyst estimates by $19.65 million and the company’s fourth quarter guidance of $0.18-$0.22 is substantially below analyst expectations of $0.36 per share. Moreover, Pier 1 Imports Inc (NYSE:PIR)’s third quarter gross margins fell to 37.8% from 42.3%, and the company expects same store sales to drop 2%-4% year-over-year in the fourth quarter. CEO Alex W. Smith said:

“Our sales slowed in the third quarter, primarily reflecting soft store traffic […] Although top line results did not meet our expectations, strict expense control enabled us to deliver earnings per share within our guidance range…We remain confident in our 1 Pier 1 omni-channel strategy, particularly as the retail climate continues to undergo dynamic change.”

Although the company repurchased 3.3 million shares in the quarter, management will need to get the same store sales up in order for investors to become optimistic on the stock again.

Pier 1 isn’t the only company with disappointing guidance, as Polaris Industries Inc. (NYSE:PII) warned today that it’s full year financial results will be weaker-than-expected. Because of the warmer winter, demand for the company’s snowmobiles has cratered. Because of the lower demand, management now sees full year EPS growth of 1%-2% down from the previous guidance of 11%-12%. Revenue growth is expected to be 4%-5%, off from the previous estimate of 10%-11%. Shares of Polaris Industries Inc. (NYSE:PII) are off by 8.6% so far. Ken Fisher’s Fisher Asset Management owned 223,972 shares at the end of September.

On the next page, we examine Cliffs Natural Resources Inc, and Barrick Gold Corporation (USA).

The downtrend continues for Cliffs Natural Resources Inc (NYSE:CLF) as its shares are off by another 8%, this time because Deutsche Bank analyst Jorge Beristain downgraded the stock to ‘Sell’ from ‘Hold’ and cut his price target to $1.50 from $3. Given the low iron prices and the company’s ‘strained balance sheet position’, Beristain thinks Cliff’s net present value is now $2.1 per share, down from his previous estimate of $2.7 per share. Cliffs Natural Resources Inc (NYSE:CLF) shares are down more than 75% this year and bulls need Cliffs’ fellow iron ore makers in Australia and Brazil to cut production as quickly as possible. Hedge fund sentiment has been slightly bearish on the stock, as the total number of funds long Cliffs dropped to 17 at the end of September from 19 at the end of June.

Barrick Gold Corporation (USA) (NYSE:ABX) shares are off by 7.7% as the price of the front-month contract of gold is down by over 2.2% in late morning trading. Some investors think gold prices could breach $1,000 per troy ounce given the strong U.S. economy and the fact that the Federal Reserve just raised rates, although whether that actually occurs is anyone’s guess. If gold breaches $1,000, $800 would be an area of strong support. Hedge fund sentiment in Barrick Gold Corporation (USA) (NYSE:ABX) has remained relatively stable, with our data showing that 40 elite funds owned shares of the company on September 30, down modestly from the 42 elite funds that were long the gold miner on June 30.

Disclosure:None