What Top Investors Think Of These Receding Stocks

Shares of GoPro Inc (NASDAQ:GPRO), Republic Airways Holdings Inc. (NASDAQ:RJET), and Herbalife Ltd. (NYSE:HLF) are down substantially in afternoon trading after each security received some bad news. GoPro is off by 7.7% after analysts at Morgan Stanley lowered their price target to $35 from $62, Republic Airways is off by 7.33% after another airline sued it, and Herbalife shares are down by 9.8% after Bloomberg published a report stating Bill Ackman has additional dirt on the company. Let’s take a closer look at the three stocks and see what top investors think of them.

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We mention the hedge fund activity concerning the three stocks because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated a double-digit alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 60 percentage points (118% return vs. the S&P 500’s 57.6% gain) over the last 36 months (see the details here).

The analysts at Morgan Stanley had this to say about GoPro Inc (NASDAQ:GPRO):

Our most recent checks were decidedly more negative as customers prefer the Silver’s LCD screen and superior video quality over the Session’s smaller form factor. Commentary by management at recent investor events confirm that Session has been a difficult sell at the same price point of its historically favorite HERO4 Silver model. Disappointing demand culminated in GoPro announcing its decision to reduce the price to $299 last week, a $100 discount from the $399 price point when the product was launched in July

Shares of the action camera company are down by more than 51% year-to-date as investors worry about slower growth and flagging demand. Morgan Stanley’s comments just reinforce the negative sentiment around the stock. GoPro bulls hope that the company’s reasonable valuation and expected launch of Hero 5 and a drone product in 2016 will change things.

Hedge funds are divided on GoPro Inc (NASDAQ:GPRO), although the overall sentiment is bullish. Of the 730+ elite funds we track, 21 funds owned $485.28 million worth of the company’s shares (representing 10.20% of the float) on June 30, versus 25 funds with stakes worth $284.33 million on March 31. Among the funds with long positions at the end of the second quarter were Edward Gilhuly’s Sageview Capital with around 2.30 million shares and Donald Chiboucis’ Columbus Circle Investors with 1.0 million shares. Jim Simons’ Renaissance Technologies owned a stake of 936,600 shares at the end of June as well. 21% of the action camera maker’s float is on ‘borrow’ by short sellers.

Republic Airways Holdings Inc. (NASDAQ:RJET) shares are down after Delta Air Lines, Inc (NYSE:DAL) sued the company for failing to provide a full schedule of flights as previously promised. Delta is claiming direct damages of at least $1 million.

Republic Airways responded with this press release:

Republic Airways Holdings Inc. (NASDAQ/NM: RJET) has been made aware of a complaint filed by Delta. The Company has not been served and has not received the full complaint and therefore cannot comment further on the matter at this time. Republic can confirm that the Company is not in breach of any of its capacity purchase agreements with any of its mainline partners, including both Delta Connection Agreements.

Given Republic Airways’ market capitalization, the lawsuit isn’t very serious at its present state, although the recent rebound in crude prices will likely do more damage to the bottom line in the long run.

Hedge funds are mixed on Republic Airways Holdings Inc. (NASDAQ:RJET). A total of 18 hedge funds owned $137.57 million of the company’s shares (representing 29.50% of the float) at the end of June, versus 15 funds and $183.40 million respectively on March 31. Ross Margolies‘ Stelliam Investment Management owns 5.01 million shares while Stephen V. Raneri’s LionEye Capital Management owns 2.06 million shares.

Herbalife Ltd. (NYSE:HLF) shares are down after Bloomberg published a report stating that Bill Ackman has ‘more dirt’ on the company. Ackman thinks the company is an illegal pyramid scheme and bet $1 billion against it in 2012. Although the FTC hasn’t ruled in Ackman’s favor, the famous hedge fund manager hasn’t given up. With today’s selloff, some long investors are selling first and asking questions later in regards to Ackman’s new information. Shares of Herbalife could also be down because fellow MLM Nu Skin guided lower for its third quarter.

While Ackman and 28.5% of the float is short, Herbalife Ltd. (NYSE:HLF) does have some famous long investors. According to SEC filings, Carl Icahn‘s Icahn Capital LP owns 17 million shares while George Soros’ Soros Fund Management owns 1.97 million shares. Overall, 34 funds owned $1.97 billion worth of the company’s shares representing 38.60% of the float on June 30, versus 35 funds and $1.57 billion respectively on March 31.

Disclosure: None