Why Are These Five Stocks Deep in the Red?

It’s a red day on Wall Street as crude futures are more than 2% lower and the three major indexes are off by around 0.3% to 0.5%.

Among the stocks trading lower are some offshore companies, Diamond Offshore Drilling Inc (NYSE:DO), Noble Corporation Ordinary Shares (UK) (NYSE:NE), Seadrill Ltd (NYSE:SDRL), a retailer, Buckle Inc (NYSE:BKE), and a wearable tech innovator, Fitbit Inc (NYSE:FIT). Let’s take a closer look at the five companies and use the latest SEC filings to see how the smart money investors from our database are positioned towards them.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).

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Offshore Companies Bleeding Lower

Diamond Offshore Drilling Inc (NYSE:DO), Noble Corporation Ordinary Shares (UK) (NYSE:NE), and Seadrill Ltd (NYSE:SDRL) are in the red today as traders rotate out of the higher-production cost names in light of the recent decline in WTI and Brent prices. Although Saudi Arabia has said that it won’t flood the market before the next informal OPEC meeting, Brent and WTI prices are each down around by 2.4% to $45.79 and $43.60 per barrel, respectively, as traders focus more on the weak inventory data. Yesterday’s EIA report wasn’t very encouraging, with U.S. commercial crude oil inventories rising 2.3 million barrels and distillate fuel inventories inching up 1.5 million barrels. Given OPEC’s past record of failures at agreeing to production freezes or at even releasing constructive language, it remains to be seen whether the disparate countries can come to a consensus this month to stabilize the oil market. Although Saudi Arabia seems intent on propping up the market, geopolitical disagreements with Iran could hurt OPEC unity and prevent any constructive agreement. Given that offshore drilling has a higher break-even than shale production in the Permian or conventional production in many parts of the world, offshore drillers need $60 per barrel or higher to do well and the sector is arguably more sensitive to oil price declines than shale drillers or traditional E&Ps.

Of the around 750 elite funds we track, 33 funds owned shares of Noble Corporation Ordinary Shares (UK) (NYSE:NE), 25 funds had a bullish position in Diamond Offshore Drilling Inc (NYSE:DO), and 17 investors were long Seadrill Ltd (NYSE:SDRL) at the end of June.

On the next page, we find out why Buckle, and Fitbit Inc are retreating.

Weak Same Store Sales Hurt Buckle 

Buckle Inc (NYSE:BKE) is 4.6% in the red today after the retailer announced disappointing comparable store net sales for the 4-week period ended August 27. For the period, comparable-store sales dropped by 14.8% year-over-year, while net sales decreased by 14%. Buckle bulls hope that the company’s comparable sales numbers will improve in the future so that the stock’s dividend yield of almost 4% remains secure. Jim Simons’ Renaissance Technologies cut its stake in Buckle Inc (NYSE:BKE) by 46% in the second quarter to 170,100 shares.

Technical Trading Detected at Fitbit

Although there isn’t any fundamental news concerning the company today, Fitbit Inc (NYSE:FIT) shares are 3% lower, partly on the back of technical selling. Although the stock has rebounded sharply from its June lows due to value buying, Fitbit shares have had trouble passing the $16 per share resistance level in recent days. In the medium term, the 200-day moving average could also present further resistance. According to our data, the hedge fund activity in Fitbit has been relatively stable in the second quarter. The number of investors from our database with holdings in Fitbit Inc (NYSE:FIT) fell by just one quarter-over-quarter to 29 at the end of June.

Disclosure: none