Why Investors Are Selling These 5 Stocks Today

In what has been another red day for the S&P 500, with it down by almost 0.4%, shares of KapStone Paper and Packaging Corp. (NYSE:KS), WestRock Co (NYSE:WRK), Zafgen Inc (NASDAQ:ZFGN), Packaging Corp Of America (NYSE:PKG), and Genesis Healthcare Inc (NYSE:GEN) have declined even further. Let’s find out why investors are selling these five stocks today as well as what relevant hedge funds have to say about them.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details here about our small-cap strategy).

First on the list is KapStone Paper and Packaging Corp. (NYSE:KS), the shares of which have plummeted by 20% after analysts at Macquarie downgraded the paper and packaging company to ‘Underperfom’ from ‘Neutral’. Similarly, WestRock Co (NYSE:WRK) is 13% in the red after analysts at Bank of America downgraded the firm to ‘Hold’ from ‘Buy’. Both companies suffered poor performance over the past twelve months, with shares of KapStone down by 43%, while WestRock’s stock has declined by

48%.

Hedge fund sentiment stayed steady in KapStone Paper and Packaging Corp. (NYSE:KS) during the third quarter, as the number of funds in our system long the stock remained unchanged at 24. D E Shaw was the largest shareholder of KapStone Paper and Packaging in our system, with 2.89 million shares valued at $47.78 million at the end of September.

On the other hand, hedge funds were extremely optimistic about WestRock Co (NYSE:WRK), with 42 funds long the stock at the end of the third quarter, up from only one shareholder long the stock at the close of the second quarter. Among the believers was Anand Parekh‘s Alyeska Investment Group, with a holding of 518,415 shares at the end of September.

Moving on, Zafgen Inc (NASDAQ:ZFGN) has lost 7% after hedge fund Kerrisdale Capital, which is one of the few funds that reveals its short positions, said it was now shorting Zafgen Inc on the belief that regulators in the U.S will not approve Zafgen’s obesity drug beloranib for sale in the country. Days ago, the company announced positive results from its Phase 3 clinical trial of that product, which demonstrated positive effects in the reduction of body weight in patients with Prader-Willi syndrome. However, two patients died while taking the treatment last year, which is enough for Kerrisdale to believe the drug has no chance of approval.

During the third quarter, Zafgen Inc (NASDAQ:ZFGN) registered an increase in popularity among the funds we track, with 14 investors holding long positions at the end of September, versus 12 funds a quarter earlier. James E. Flynn‘s Deerfield Management was the largest shareholder of Zafgen Inc (NASDAQ:ZFGN) in our system, owning 553,472 shares, valued at $17.68 million at the end of September.

Packaging Corp Of America (NYSE:PKG)’s shares are down by around 12% today after analysts at Citigroup downgraded the company to ‘Neutral’ from ‘Buy’, while analysts at Macquarie did the same, to ‘Underperfom’ from ‘Neutral’. Among the funds we follow, 19 reported long positions in Packaging Corp Of America (NYSE:PKG) as of the end of September, down by 13 funds from a quarter earlier.

Genesis Healthcare Inc (NYSE:GEN) is another company that is losing ground today, down by nearly 30%. Investors are selling after the company announced updated 2015 guidance as well as preliminary 2016 guidance. The company now expects revenue in the range of $5.63 billion to $5.66 billion, adjusted EBITDA of between $246 million and $252 million and EPS of $0.21-to-$0.23 for the 12 months ended December 2015.  The company’s full year 2016 guidance was set to $5.7 billion-to-$5.8 billion for adjusted net revenue, $267 million-to-$297 million for non-GAAP EBITDA, and $0.19-to-$0.29 for non-GAAP EPS.

During the third quarter, Genesis Healthcare Inc (NYSE:GEN) also registered a decrease in popularity among the funds that we track, with 12 investors holding long positions at the end of September, down from 14 funds at the end of June.

Disclosure: None