Why Are Investors Selling These Four Stocks Today?

Although the S&P 500 is making a furious comeback after being down 1% earlier in the day, shares of Outerwall Inc (NASDAQ:OUTR), United Natural Foods, Inc. (NASDAQ:UNFI), ON Semiconductor Corp (NASDAQ:ON), and Wabash National Corporation (NYSE:WNC) are trading considerably lower from yesterday’s close. Let’s take a closer look at why investors are selling the four stocks.

Let’s also examine hedge fund sentiment toward the four stocks. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 36-month period beginning from September 2012 (see the details here).

It hasn’t been a pretty day for Outerwall Inc (NASDAQ:OUTR) shareholders so far, as the stock is down 21.7% after management cut guidance because of poor results from the company’s Redbox division. For the full year, Outerwall Inc (NASDAQ:OUTR) now expects revenue to be in the range of $2.165 billion – $2.19 billion, down from the previous $2.2 – $2.24 billion, and core EPS to be between $7.65 and $8.15, down from the previous $8.82 – $9.52. Hedge funds are still optimistic on the company (perhaps because of Outerwall’s low forward P/E), however, with 28 elite funds owning 37.7% of the company’s float at the end of September. Among them is Joel Greenblatt’s Gotham Asset Management, with a stake of 674,188 shares.

Next on our list is United Natural Foods, Inc. (NASDAQ:UNFI), whose stock is off by 17% after the company reported first quarter EPS of $0.63 on revenue of $2.08 billion, missing profit estimates by $0.04 per share and meeting revenue expectations. Because of softer demand for its higher margin products, United Natural Foods’ gross margin retreated 89 basis points to 15.1%. Guidance is lower with United Natural Foods now expecting net sales in the range of $8.43 billion to $8.59 billion and GAAP EPS between $2.73 and $2.84 for fiscal 2016, down from the previous guidance of $8.51 billion – $8.67 billion and $2.80 – $2.93, respectively. Among the 16 funds from our database that are long the stock is Ken Fisher’s Fisher Asset Management with a stake of 693,333 shares held as of the end of September

On the next page, we examine ON semiconductor and Wabash National Corporation.

In other news, ON Semiconductor Corp (NASDAQ:ON) shares have fallen 6.6% today after an undisclosed buyer bid $21.70 per share in cash for Fairchild Semiconductor Intl Inc (NASDAQ:FCS), or $1.70 per share higher than ON’s bid of $20 in November. Investors are selling because they worry ON Semiconductor Corp (NASDAQ:ON) could bid more for Fairchild in its attempt to realize annual synergies of upwards of $150 million. Although the acquisition was originally considered a done deal when ON Semiconductor announced a ‘definitive agreement’ to acquire Fairchild in November, the new bid now throws a ratchet into everyone’s calculations. According to our extensive database, 29 funds were long the stock in the third quarter, down 11 from the second quarter. David Einhorn’s Greenlight Capital owned 17.31 million shares as of the latest 13F filing period.

Last but not least, Wabash National Corporation (NYSE:WNC) is 6% in the red in afternoon trading after the analysts at Stifel Nicolaus downgraded the transportation equipment maker to ‘Hold’ from ‘Buy’ ( although they kept their $12 price target on the company, giving the stock 10% upside). Because of today’s retreat, shares of Wabash National Corporation (NYSE:WNC) have lost around 11% year-to-date and trade at 8.4 times forward earnings. Despite today’s decline, hedge funds have been cautiously optimistic on the stock, with 24 elite funds owning shares in Q3, up from the 20 funds a quarter earlier.

Disclosure:None