What Stands Behind The Decline Of These 5 Stocks Today

Major U.S. stock indexes continued to tumble -for the fourth day in a row- on Thursday. Shares of Natural Health Trends Corp. (NASDAQ:NHTC), Hilton Worldwide Holdings Inc (NYSE:HLT), KB Home (NYSE:KBH), JD.Com Inc (ADR) (NASDAQ:JD), and HP Inc (NYSE:HPQ) were all trading down. So, take a look into the events driving these declines, and into how the hedge funds in our database feel about these companies.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

Let’s start with Natural Health Trends Corp. (NASDAQ:NHTC), a small cap direct-selling and e-commerce company that saw its stock plummet by about 8.3% on Thursday after a Chinese site said government authorities in the country were investigating the company. The article explained that Natural Health Trends Corp. (NASDAQ:NHTC) was suspected to be operating as a pyramid scheme.

It should be noted that Natural Health Trends Corp. (NASDAQ:NHTC)’s stock had a very strong 2015, almost tripling in price over the year. In addition, hedge funds have become increasingly interested in the stock: as of the end of the second quarter of 2015, only nine funds among those we track held long stakes in the company; by the end of the third quarter, there were 13 funds long the stock. Among them, we should highlight Jim Simons’ Renaissance Technologies, which last disclosed ownership of 447,700 shares – or roughly 3.65% of the total shares outstanding.

The next decliner in this list is Hilton Worldwide Holdings Inc (NYSE:HLT). The shares were trading down about 2.2% on Thursday afternoon, probably driven by news about Faruqi & Faruqi, LLP, a national securities law firm, investigating, on behalf of the company’s shareholders, potential misconduct by its officers and directors.

It seems like the funds in our database are quite fond of Hilton Worldwide Holdings Inc (NYSE:HLT). A total 51 of them reported long stakes in the company as of the end of the third quarter – same as in the previous one. The largest position was held by Andreas Halvorsen’s Viking Global, which declared having started a position with more than 15.32 million shares, worth over $351 million, over the third quarter of 2015.

On the next page we will take a look at the reasons behind the declines in KB Home, JD.com and HP Inc.

Also falling on Thursday afternoon was KB Home (NYSE:KBH), down by almost 10% on disappointing fourth-quarter results. The small cap homebuilder reported earnings of $0.43 per share on revenue of $985.78 million, well below the Street’s consensus estimates, which called for earnings of $0.51 per share and revenue of $1.074 billion.

Unlike its peers above, KB Home (NYSE:KBH) has been losing institutional backers. Over the third quarter, the number of hedge funds (among those we track) with long stakes in the company fell by 24% to 19. Interestingly, these funds own 26.3% of the company’s total outstanding stock; Ken Fisher’s Fisher Asset Management alone held almost 4% of the stock, or about 3.53 million shares.

JD.Com Inc (ADR) (NASDAQ:JD) lost more than 4.1% on Thursday as the Chinese stock market plummeted. After a 7% tumble, automatic circuit breakers halted trading — for the second time this week.

Same as in the previous case, hedge fund interest in JD.Com Inc (ADR) (NASDAQ:JD) has also been declining. Over the third quarter, the number of funds with long positions in the stock fell from 75 to 71. In fact, the largest shareholder among the institutions we track, Chase Coleman’s Tiger Global Management, trimmed its exposure by 19% over the period, taking its holdings to roughly 57.52 million shares – valued at almost $1.5 billion.

Finally, there’s HP Inc (NYSE:HPQ), which was trading down about 3.7% on Thursday afternoon after Wells Fargo’s Maynard Um downgraded the stock to ‘Market Perform’ from ‘Outperform’. The expert argued that the company lacks “material catalysts” for 2016 and that “top-line pressures in the company’s core PC and printing ops will more than offset growth opportunities”.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.