Why Are These 4 Stocks Having Such an Unpleasant Morning?

With the S&P 500 futures down by 1% and crude futures off by 2%, shares of Toll Brothers Inc (NYSE:TOL), Chipotle Mexican Grill, Inc. (NYSE:CMG), Rio Tinto plc (ADR) (NYSE:RIO), and Netflix, Inc. (NASDAQ:NFLX) are ahead of the pack in the wrong direction, as each is trading down by varying degrees in morning trading. Let’s take a closer look at why. We’ll also examine relevant hedge fund sentiment toward these stocks.

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.

First up is luxury home builder Toll Brothers Inc (NYSE:TOL), which reported its latest financial figures this morning, announcing EPS of $0.80 on revenue of $1.44 billion for its fourth quarter of fiscal year 2015. Although revenue exceeded analyst estimates by $10 million, Toll Brothers’ EPS missed estimates by $0.03 and the company’s stock has fallen by more than 5% as a result. For the full 2015 fiscal year, Toll Brothers earned $1.97 per diluted share on revenue of $4.17 billion, up from $1.84 per share on revenue of $3.91 billion in fiscal year 2014. The company expects fiscal year 2016 revenue to be much better, envisioning revenue of between $4.5 billion and $5.6 billion.

Despite today’s retracement,Toll Brothers Inc (NYSE:TOL) shares are still in the green year-to-date and should continue to benefit from the strong U.S economy. The company is buying back stock, with management having bought back 1.67 million shares in fiscal year 2015. The smart money tracked by Insider Monkey is also optimistic. 34 elite funds in our database were long Toll Brothers at the end of the third quarter, an uptick from 33 funds long the stock following the second quarter.

Chipotle Mexican Grill, Inc. (NYSE:CMG) can’t seem to catch a break, as shares of the restaurant chain are off by another 4% this morning, after 30 Boston College students became sick after eating Chipotle over the weekend. News of the students’ health status aggravated fears that Chitpole’s E. coli supply chain issues might not be over. 47 customers in nine different states have gotten sick from E-coli after eating at Chipotle so far and the increased media attention has led many regular customers to avoid eating at the restaurant for the time being. Because of the company’s E. Coli problems, Chipotle Mexican Grill, Inc. (NYSE:CMG) estimates that its fourth quarter sales will drop by 8%-to-11%. Shares of the company are now down by over 20% year-to-date.

On the next page, we examine the activity in the shares of Netflix and Rio Tinto.

The news keeps on getting worse for commodity giant Rio Tinto plc (ADR) (NYSE:RIO), as the spot price of iron ore fell to a fresh 10-year low (now below $40/metric ton) on the back of a weak Chinese economy and an industry supply glut. Rio Tinto plc (ADR) (NYSE:RIO) gets a substantial portion of its cash flow from iron ore and plunging prices is a huge blow for the company. In response, Rio Tinto plans to cut its capital expenditures by $1.5 billion over the next two years to bring spending down to around $5 billion for each of 2015 and 2016. Rio Tinto’s CapEx cuts will sustain the company’s $4.1 billion dividend for now, but it needs iron ore prices to rebound in order to do well. Shares of the company are off by 6.4% today and are down by over 30% year-to-date.

Netflix, Inc. (NASDAQ:NFLX) shares are off modestly after Amazon.com, Inc. (NASDAQ:AMZN) launched its Streaming Partners Program, which provides Amazon Prime members with discounted prices for different 3rd party subscription streaming services such as Showtime and STARZ. Amazon’s new service is separate from its Prime Video streaming service and represents additional competition that Netflix will have to contend with in the company’s quest to dominate streaming programming. Of the 730 elite funds that we track, 57 firms owned $6.51 billion worth of Netflix, Inc. (NASDAQ:NFLX) shares (accounting for 14.90% of the float) on September 30, versus 50 funds and $6.15 billion respectively on June 30. Among the funds long the stock is Andreas Halvorsen‘s Viking Global, with a holding of 4.52 million shares at the end of September.

Disclosure: None