Why Are These Stocks Plunging on Monday?

After a bit of wobbling around the opening, equities seem to be heading north, as the upward momentum is still strong ahead of the earnings season. However, several stocks are getting hammered today, most notably Transocean LTD (NYSE:RIG), Chesapeake Energy Corporation (NYSE:CHK) and Freeport-McMoRan Inc (NYSE:FCX). In this article we’ll discuss the news that triggered this avalanche and how is smart money positioned towards each stock.

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Back to the losers now. Freeport-McMoRan Inc (NYSE:FCX) stock is battered as investors are worried by the latest news coming out of Indonesia. The Indonesian government has announced plans to amend the rules regarding mining contract extension by the end of the year. Although the Freeport-McMoRan said it received assurances that its contract, which runs out in 2021, will be extended, it was not enough for investors, as the stock plummeted by as much as 6% during the first hours of trading. Freeport runs the Grasberg copper and gold mine, one of the country’s largest, and has been seeking assurances of a contract extension for the past two years. As the present rules allow negotiation to commence only two years before the end of the contract, this term is subject to revision and could be increased to 10 years.

Hedge fund legend Stanley Druckenmiller has high hopes for Freeport-McMoRan Inc (NYSE:FCX), which is among his top 10 stock pics. According to its latest 13F filing, Duquesne Capital holds 3.54 million shares, a position built throughout the second quarter. Recently, activist investor Carl Icahn also has initiated an 8.80% position that contains 100 million shares of the company and has obtained two seats on Freeport’s board (see details). The stock’s fan club has grown during the second quarter, with the number of funds holding stakes in Freeport-McMoRan having increased to 41, while the total value of their investments more than doubled to $581 million. Still, the holdings of the hedge funds from our database (excluding Icahn) accounted for only 3% of the company’s common stock at the end of June.

On the next page we’ll discuss two other stocks that are tanking following analyst reports.

Analysts at Vetr have downgraded Chesapeake Energy Corporation (NYSE:CHK) to ‘Hold’ earlier today, having only a week ago downgraded it to ‘Buy’ from ‘Strong Buy’. They have also attached a price target of $9.66, which indicates an upside potential of 8.8% from Friday’s closing price. With oil prices also tumbling today, Chesapeake Energy dropped by 7%.

Although together they control 23.4% of Chesapeake Energy Corporation (NYSE:CHK)’s common stock, the elite funds from our database have withdrawn some of their capital during the second quarter. As the aggregate value of their  holdings fell by a quarterly 31.3% at the end of June, the number of funds reporting a stake in the company also dropped to 33, from 37 at the end of March. Mason Hawkins and Southeastern Asset Management decided to reduce exposure to the energy company, cutting their stake by 6% to 60.4 million shares, while Carl Icahn left his position untouched. In its latest 13F filing, Icahn Capital reported ownership of 73 million shares of Chesapeake Energy.

Another analyst report, another victim. KeyBanc Capital Markets initiated coverage on Transocean LTD (NYSE:RIG), assigning a “Sector Weight” rating according to a report sent to investors. Last week’s strong, 22% rally was halted today, as shares dropped by as much as 8.5% during the first hours of trading. In general, analysts are not thrilled about Transocean, with 13 of them recommending it as a ‘Sell’, nine believing the stock is a ‘Hold’ and only one having issued a ‘Buy’ rating. Their average one-year price target is $14.20 per share.

The popularity of Transocean LTD (NYSE:RIG) received a significant boost during the second quarter, with 32 hedge funds reporting long positions at the end of June, up from 25 a quarter earlier. Their combined holdings accounted for 8.5% of the common stock and were valued at more than $498 million. Icahn Capital is the biggest shareholder of Transocean among the funds we track, having reported ownership of 21.4 million shares in its latest 13F filing. Robert Pitts of Steadfast Capital is also bullish on the stock, having increased his investment by 76% to 1.76 million shares by the end of June.

Disclosure: none.