It seems to be opposite day today, as all three indexes are in the red, but oil is gaining ground. Among the stocks that are bleeding are Regions Financial Corp (NYSE:RF), Advanced Micro Devices, Inc. (NASDAQ:AMD), Mondelez International Inc (NASDAQ:MDLZ), Swift Transportation Co (NYSE:SWFT), and Celadon Group, Inc. (NYSE:CGI), each of which is down on the back of different developments that we are going to take a closer look at.
In addition, let’s analyze hedge fund sentiment towards these stocks. Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% over the last 37 months and outperformed the S&P 500 Index by 53 percentage points (see the details here).
Regions Financial Corp (NYSE:RF) is down by more than 2% as the stock gives back some of its pre-Federal Reserve interest rate gains. Although the Federal Reserve increased the short term interest rate by 0.25 percentage points this week, it has also hinted that interest rates will likely be low for a long time, meaning Regions Financial Corp (NYSE:RF)’s net interest margin won’t increase substantially all at once. Rising earnings and returns on equity will be a slow process (although the long term future for the bank is certainly better with higher rates).
Moving on, Advanced Micro Devices, Inc. (NASDAQ:AMD) shares have retreated by 2.9% as some investors take profits in the stock’s over 50% rally since late August. Although the sentiment around the stock has improved, Advanced Micro Devices, Inc. (NASDAQ:AMD) still faces an uphill climb against established industry giants. Analysts also expect the company to lose $0.28 per share next year. Bulls hope the company increases its scale and cuts its costs. Cliff Asness’ AQR Capital Management owned 1.7 million shares at the end of September.
On the next page, we examine Mondelez International Inc, Swift Transportation Co, and Celadon Group Inc.