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Here’s Why These Three After-Market Lemons May Be Good Buys On The Dip

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Shares of Container Store Group Inc (NYSE:TCS), Radware Ltd. (NASDAQ:RDWR), and Illumina, Inc. (NASDAQ:ILMN) dropped by sizable amounts in after-market trading on Monday, weighed down by their performance in the current quarter or their predictions for the next. Yet, it should be noted that Insider Monkey’s data reveals that top hedge funds were bullish on these three firms in the second quarter, which could indicate they will make for strong long-term investments on the dip.


Professional investors spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, while their returns have been strong the past two years, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The exceptional results of this strategy got even better in forward testing after the strategy went live at the end of August 2012. A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned 118% and beaten the market by more than 60 percentage points since then (see the details).

Container Store Group Inc (NYSE:TCS) shares were down by almost 12% in after-hours trading on Monday after the firm reported second quarter results which were below analysts’ expectations. The firm reported net income of $2.67 million, or $0.06 per diluted share, below the consensus estimate of $0.07 per share, on revenues of $195.48 million, less than analysts’ consensus estimate of $197.71 million. In the year-ago quarter, net income was $6.96 million, or $0.14 per diluted share, on revenues of $193.25 million. Gross margin declined from the same quarter a year ago by 60 basis points to 58.2%, while same-store sales grew by only 0.1%. The firm reiterated its guidance for the full fiscal year, anticipating EPS of $0.30-to-$0.38 and revenues of $800 million-to-$815 million, within range of the consensus estimate of EPS of $0.34 on $809.87 million in revenue.

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Hedge funds were bullish on Container Store Group Inc (NYSE:TCS) in the April-to-June period. They had $72.3 million invested in the firm by the end of June, owning 8.90% of the company’s total float. The aggregate value of these hedge funds’ holdings grew by 2.43% in the quarter despite an 11.14% decline in the stock’s price. There were eight hedge funds long on Container Store Group by the end of the second quarter, up by one from the end of the first quarter. Among the investors we track, Sanford J. Colen’s Apex Capital owned the largest stake in the firm on June 30, holding 2.18 million shares.

Similarly, the preliminary results released by Israel-based Radware Ltd. (NASDAQ:RDWR) for the third quarter of 2015 weighed down its shares in after-market trading, pushing them 7.79% into the red. According to the firm, it expects revenues for the third quarter to be $48 million, significantly below the company’s prior guidance of $57 million-to-$59 million. Adjusted EPS is anticipated to be $0.10 per diluted share, also sizably lower than the $0.23-to-$0.24 per diluted share guidance of the firm. Wall Street expected revenues of $58 million and adjusted EPS of $0.24 from the cybersecurity firm.

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Radware Ltd. (NASDAQ:RDWR), according to Insider Monkey’s data, was loved by hedge funds in the second quarter. Hedge funds ended the period with $222.28 million in shares of the firm, representing a total of 21.80% of the company’s shares. These holdings increased by 2.19% during the quarter, though the stock climbed by 6.17% in that time. 22 hedge funds were long Radware by the end of June, up by four from the end of March. Richard Mashaal’s RIMA Senvest Management owned the largest stake among the investors we track, ending the second quarter with 3.46 million shares, down by 3% from the end of the first quarter.

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