What Sent These Stocks Lower on Wednesday?

Shares of KKR & Co. L.P. (NYSE:KKR), Akamai Technologies, Inc. (NASDAQ:AKAM), Big 5 Sporting Goods Corporation (NASDAQ:BGFV), AFLAC Incorporated (NYSE:AFL) are down in extended market trading for various reasons. Let’s find out why and see what hedge funds think of them.

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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 more than 102% over the last 34 months and outperformed the S&P 500 Index by 53 percentage points (see more details here).

KKR & Co. L.P. (NYSE:KKR) has opened nearly 10% lower after reporting a third quarter loss of $0.37 per share on revenues of $188.6 million, missing estimates by $0.07 per share and $70.09 million, respectively. Assets under management stood at $98.7 billion, up from $96.1 billion last year, but down from the $101.6 billion at the end of the second quarter. To placate shareholders, management announced the private equity giant will buy back shares for the first time ever and change its fluctuating quarterly dividend policy to a fixed dividend instead. At a forward P/E of 6.7, the shares look cheap, although the company may need to diversify to get a higher multiple down the road. Leon Cooperman‘s Omega Advisors owned 2.65 million shares of KKR at the end of June.

On the next page, we examine why Big 5 Sporting Goods Corporation, and AFLAC are down in extended market trading.

Akamai Technologies, Inc. (NASDAQ:AKAM) has slumped by 19% on the back of fourth quarter revenue guidance between $557 million and $577 million and EPS range of $0.60 to $0.64, versus the analysts’ expectation of $596.7 million and $0.65, respectively. Investors worry that future demand will be softer than anticipated as some of Akamai’s CDN customers such as Netflix, Inc. (NASDAQ:NFLX) build their own CDNs to save on costs and speed up their websites. Given the forward PE of 26, shares could take a few quarters consolidating before continuing the trend. Hedge funds were mixed on Akamai Technologies, Inc. (NASDAQ:AKAM) in the time period from March 31 to June 30. Although the number of funds increased to 39 from 37, the total value of their holdings in the stock declined to $1.05 billion (accounting for 8.40% of the float) from $1.12 billion.

Big 5 Sporting Goods Corporation (NASDAQ:BGFV) has lost over 11% after the company reported earnings of $0.28 per share on revenues of $270.13 million (up by 1.9% year-over-year), missing estimates by $0.02 and $3.31 million, respectively. Sales were challenged “by cycling the benefit of Men’s World Cup soccer-influenced sales during the third quarter of last year, as well as by the continuing impact of the drought in our markets on certain summer-related product categories”. Guidance is for fourth quarter earnings to be $0.10 to $0.20 per share and for same store sales to be ‘in the low negative single-digit to low positive single-digit range’. A total of 16 funds reported stakes worth $56.15 million (representing 17.70% of the float) at the end of June, versus 15 funds and $52.63 million at the end of March. Alexander Medina Seaver’s Stadium Capital Management owned 2.51 million shares at the end of June.

Last but not least, AFLAC Incorporated (NYSE:AFL)’s stock declined in extended trading, but has climbed  by nearly 2% since the opening, after the company reported third quarter earnings of $1.56 per share on revenues of $5 billion (down 12.3% year-over-year), beating profit expectations by $0.08 per share but missing revenue estimates by $170 million. The strong dollar and a weaker Yen are having a negative effect on revenues, although management is doing a good job at controlling costs. Given the price to book ratio of 1.5, shares of AFLAC are not cheap, although they certainly aren’t expensive either. If Japan’s economy begins growing again, the stock will do well. Hedge funds are ambivalent on AFLAC Incorporated (NYSE:AFL). A total of 27 funds owned 2% of the stock’s float at the end of June.

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