Why Are These Stocks Falling Today?

With stocks managing to hold on to gains after a small correction, let’s take a look at some stocks that are still in the red at noon. American International Group Inc (NYSE:AIG), Dow Chemical Co (NYSE:DOW), Vera Bradley, Inc. (NASDAQ:VRA) and Navistar International Corp (NYSE:NAV) have refused to follow the main trend and are still in the red.

Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 102% over the ensuing 38 months, outperforming the S&P 500 Index by nearly 53 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.

American International Group Inc (NYSE:AIG) shares are trading lower at noon, amid news of a management overhaul. The insurance giant announced today that four senior executives are to depart the company. One of those leaving is Chief Financial Officer David Herzog. Mr. Herzog is set to retire after the filing of all of the company’s annual statements for 2015. This round of dismissals is part of a broader plan to reduce the company’s management personnel by 23% or approximately 320 positions. Shares have fallen by as much as 2% before regaining some of the lost ground.

One of the most popular stocks among the funds we follow, American International Group Inc (NYSE:AIG) could be found in the portfolios of 94 elite funds at the end of the third quarter, down from 99 at the end of June. John Paulson is the biggest fan of AIG among the hedge fund managers we track, with Paulson & Co reporting ownership of 14.6 million shares valued at $829 million as of the end of September.

The merger talks between Dow Chemical Co (NYSE:DOW) and E I Du Pont De Nemours And Co (NYSE:DD) are testing the nerves of shareholders, as both stocks are in the red today. Shares of Dow Chemical have declined by as much as 4.5% by noon today, while Du Pont shares are currently down by 3.3% from yesterday’s closing price. The merger of the two giants is set to give birth to a colossus with a value exceeding $130 billion and operations in agriculture and industrial materials. A deal of this magnitude is bound to undergo close scrutiny by antitrust enforcers as well as smaller actors that are worried about market concentration. Analysts, however, point to the fact that there is only a small number of areas in which the two companies are competitors, as both companies have been diversifying into different industries over the years.

Hedge fund interest in Dow Chemical Co (NYSE:DOW) cooled off during the quarter, with the number of funds invested decreasing to 56 from 65. Israel Englander made a major move during the third quarter, boosting Millennium Management’s holding by 1,225% to 36.7 million shares worth $1.55 billion. Dan Loeb‘s Third Point is also betting big on the chemical giant, having reported ownership of 23.5 million shares valued at $996 million.

Yesterday’s smiles turned into tears for Vera Bradley, Inc. (NASDAQ:VRA) shareholders, as the stock took a nosedive today. The stock soared yesterday as third quarter financial results beat market expectations, pushing shares up by as much as 45%. Today, however, is a new story: Standpoint Research has downgraded the stock to Hold from Buy. Shares fell by as much as 8.3% before gaining some of the lost ground and are currently trading around the $16 level.

Approximately 17% of Vera Bradley, Inc. (NASDAQ:VRA)’s stock was held by 15 top funds at the end of September, down from 16 a quarter earlier. Jim Simons‘ Renaissance Technologies, were among those looking to diminish exposure to this stock, reducing their holding by 21% to 955,300 shares. Mariko Gordon’s Daruma Asset Management, the largest holder of VRA shares in our database, has also reported a reduction in its holding to 3.56 million shares valued at $44.9 million.

Navistar International Corp (NYSE:NAV) has resumed the bearish trend, having fallen for seven consecutive days before yesterday’s breather. The stock is currently trading around the $9.90 level, down by 14% from yesterday’s closing price. It has not been an easy week for Navistar shareholders, with the stock having been downgraded on Monday to Strong Sell by Zacks Investment Research citing weak fundamentals. Today, Deutsche Bank and Cleveland Research have reiterated their Hold and Neutral ratings, respectively. Deutsche Bank has also decreased its price target to $14.00 per share, from the previous target of $17.00.

Carl Icahn and Mark Rachesky are both betting big on Navistar International Corp (NYSE:NAV), holding similar positions. In their latest 13F filing, Icahn Capital reported ownership of 16.3 million shares, while MHR Fund Managemenet reported 16.2 million shares, up by 6% over the third quarter. According to our database, 25 elite funds held roughly 51% of Navistar’s common stock at the end of September, up from 16 funds at the end of the second quarter.

Disclosure: none.