Why These Stocks Are Tanking Today

The decline of the U.S. stocks is continuing for the third day straight, after disappointing economic data put downward pressure on the market. The energy market is also weighing in, with crude oil trading around the $40 level and threatening to break it. A number of stocks have registered a sharp fall in the first half of the day and in this article we’ll take a look at the factors behind the decline of Perrigo Company plc Ordinary Shares (NYSE:PRGO), MannKind Corporation (NASDAQ:MNKD), Vipshop Holdings Ltd – ADR (NYSE:VIPS), JD.Com Inc(ADR) (NASDAQ:JD) and Avon Products, Inc. (NYSE:AVP).

crystal51/Shutterstock.com

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 37 months, outperforming the S&P 500 Index by nearly 53 percentage points (read more 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.

Shares of Perrigo Company plc Ordinary Shares (NYSE:PRGO) took a tumble today after shareholder rejected Mylan NV (NASDAQ:MYL)’s takeover offer. Perrigo shareholders had to chose between Mylan’s $26 billion offer and their management’s promise to deliver better value through cost cuts and stock buybacks. Mylan’s offer included $75 in cash plus 2.3 Mylan shares for every share of Perrigo, which carried a value of $174.36 per share given Mylan’s yesterday’s closing price. Shares of Perrigo fell by as much as 10% this morning, while Mylan shares soared by more than 5% during the first hours of trading.

One of the most popular healthcare stocks among hedge fund managers, Perrigo Company plc Ordinary Shares (NYSE:PRGO) could be found in the portfolios of 83 top funds, which held roughly 18% of the company’s common stock at the end of June. James Dinan and Daniel S. Och joined the party in the second quarter, initiating stakes that made their funds the largest holders of the stock in our database. Dinan’s York Capital Management reported ownership of 3.31 million shares, while Och’s OZ Management held 3.03 million shares at the end of the quarter.

Yesterday’s smiles turned to tears for holders of MannKind Corporation (NASDAQ:MNKD)’s stock today, after the company’s latest efforts to raise funds registered mediocre results. The biopharmaceutical company announced on Monday plans to sell as much as 50 million shares on the Tel Aviv Stock Exchange, but only managed to sell 13.8 million, racking up roughly $36 million. Matt Pfeffer, CFO of MannKind, said this would be enough to “provide MannKind with needed near term liquidity to support Afrezza operations and Technosphere developments.”

The fact that MannKind Corporation (NASDAQ:MNKD) is getting closer to record lows has not prompted hedge funds to rush in and buy it on the dip. At the end of the second quarter, 13 funds we follow reported long positions in MannKind Corporation accounting for 5.5% of its common stock. Jonathan Savitz is among those betting big on the company, having boosted his stake by 47% to more than 11 million shares, according to Greywolf Capital Management’s latest 13F filing.

One of the biggest losers today, Vipshop Holdings Ltd – ADR (NYSE:VIPS)’s stock has fallen off a cliff after the company announced preliminary third-quarter results. One of the biggest discount retailers in China, Vipshop said it expects revenues to range between RMB8.6 billion and RMB8.7 billion ($1.35 billion – $1.36 billion), down from previous projections of RMB9.1 billion to RMB9.3 billion ($1.42 billion to $1.46 billion). The company explained that Chinese customers have delayed purchases of autumn and winter apparel since this year’s autumn has been warmer than expected. Vipshop is set to release the actual financial report on Tuesday, November 17, after the market close.

At the end of June, roughly 17% of Vipshop Holdings Ltd – ADR (NYSE:VIPS) outstanding shares were held by 54 elite funds, up from 48 at the end of March. Tiger Cub Chase Coleman thought it was better to reduce his exposure to the stock during the second quarter, cutting his stake by 5% to a little over 15 million shares. John Burbank followed suit, reducing Passport Capital holding of Vipshop stock by 8% to 10.9 million shares.

It looks like Vipshop is dragging JD.Com Inc (ADR) (NASDAQ:JD) down as well, as investors continue to witness weakness in the retail segment. The U.S. retailers have started the earnings season on the wrong foot, falling short of analysts’ estimates and driving the stock lower. It seems it’s not just the U.S. retail sector that is affected, as JD.Com Inc (ADR) (NASDAQ:JD) also suffers from the slump in the Chinese economy, despite registering record sales on Singles’ Day.

One of the top stocks among the funds we track, JD.Com Inc (ADR) (NASDAQ:JD) registered a popularity boost as the number of funds invested rose to 75 at the end of June from 68 at the end of March. Together they controlled a bit over 25% of the company’s outstanding stock. Julian Robertson is heavily invested in this stock as well, having boosted his stake by 235% to 70.1 million shares during the second quarter, while Hillhouse Capital Management, by far the largest holder of JD.Com’s stock, slightly had its stake reduced. Lei Zhang, the fund’s manager, sold nearly 500,000 shares, leaving his fund with roughly 143 million shares.

Avon Products, Inc. (NYSE:AVP)’s stock has continued its slide, after falling by nearly 15% yesterday on fears the company might be forced to eliminate its dividend. Citing a report by Fitch Solutions, Barron’s wrote yesterday that Avon might face a liquidity crunch, as the company recently reduced its free cash flow outlook. Although Avon’s liquidity levels are “adequate”, the agency points to the company’s credit default swap spread, a measurement of investors’ willingness to pay for credit protection, reached record levels. Shares are currently trading at $2.60 apiece, down by roughly 2.5% from yesterday’s closing price.

Hedge fund interest for Avon Products, Inc. (NYSE:AVP) stock cooled down a bit during the second quarter, with the number of funds holding the stock falling to 26 from 32 at the end of March. Their presence was still a notable one, as they held 15.5% of common stock. Donald Yacktman and his fund, Yacktman Asset Management, hold the largest stake in Avon, reporting ownership of 38 million shares in its latest 13F filing for the third quarter, a minor decline from the end of June.

Disclosure: none.