It’s getting harder and harder to remain a short-term bull in the market today, as volatility increases and concerns over the global economy climb. Among the stocks in the red this Wednesday are Twitter Inc (NYSE:TWTR), Netflix, Inc. (NASDAQ:NFLX), CSX Corporation (NASDAQ:CSX), and Lendingtree Inc (NASDAQ:TREE). Let’s find out why investors are selling these stocks and check out what hedge funds think of each of them.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
Twitter Inc (NYSE:TWTR) shares continued their trek lower today after analysts at Mizuho initiated coverage of the stock with a ‘Neutral’ rating and $21 price target. According to Mizuho’s Neil Dosh, Twitter shares haven’t done well because management hasn’t executed and the company has failed to improve its value proposition to its massive user base. Hedge funds aren’t too ecstatic about Twitter, either, as the number of elite funds holding Twitter fell to 27 from 47 quarter-over-quarter by the end of the third-quarter. Those 27 elite funds also held just 1.4% of the social media company’s float on September 30.
In Twitter Inc (NYSE:TWTR)’s defense, turnarounds take time and the stock is trading closer and closer to value territory given its decline over the past year. Twitter shares are 3.3% lower in afternoon trading.
Tech momentum stock Netflix, Inc. (NASDAQ:NFLX) was also the victim of some bearish analyst commentary today, as its shares fell by more than 5% due to analysts at ITG Research trimming their fourth-quarter domestic subscriber estimates. ITG estimates that Netflix will add a net 1.13 million subscribers for the quarter, versus the 1.3 million guided by the company and the 1.37 million expected by analysts. If Netflix doesn’t meet or beat its expected subscriber add numbers, the company will have a tough time meeting or beating its expected revenue numbers as well. Adding to the bearish sentiment is a New York Times article published today in which the writer allowed a Netflix bear, Michael Pachter of Wedbush Securities, to have the last word. Pachter commented:
“These guys aren’t going away — I just think the stock will drop to about $70 or $75. Otherwise, things just don’t make sense. Because really, for Netflix to win, everyone else has to lose.”
Hedge funds are bullish however, with the number of elite funds holding shares rising by seven during the September quarter, to 57.
On the next page, we dig into CSX Corporation and Lendingtree Inc.