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What’s The Deal With These Stocks Getting Pounded Today?

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Amid a strong day for the market which has seen several major companies post earnings beats and shares of Ferrari NV (NYSE:RACE) race out of the IPO starting gates, a handful of other companies are heading the wrong way on the valuation track. Let’s find out what has soured investors on Pearson PLC (ADR) (NYSE:PSO), Polaris Industries Inc. (NYSE:PII), St. Jude Medical Inc. (NYSE:STJ), EXCO Resources Inc (NYSE:XCO), and Weight Watchers International, Inc. (NYSE:WTW) today and whether they could make for good investments on the dip.

Oprah Winfrey

Let’s start with Weight Watchers International, Inc. (NYSE:WTW). After two days of torrid gains that left one editor of Insider Monkey shaking his head at the powerful Oprah effect on the stock, Weight Watchers International, Inc. (NYSE:WTW) is experiencing a somewhat expected pullback today. Shares have dipped by just over 6.50% in early afternoon trading after gaining 169% over the previous two trading sessions after it was revealed that the renowned celebrity had taken a 10% stake in the weight management company, landed a seat on its board, and entered into an agreement to promote its services. That run increased the value of her initial investment of $43.2 million to over $116 million. In addition, Oprah has the option to purchase another 3.5 million shares at $6.79 each, an option which would be worth another $36 million at present. The run for the stock has crushed short sellers, who were shorting over 50% of the stock’s float amid the company’s difficulty competing in the new era of fitness trackers. Investors we track were fleeing the stock in the second quarter, with ownership falling to 9 from 18. Shares are still down by over 32% year-to-date.

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At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

Shares of Pearson PLC (ADR) (NYSE:PSO) are off by over 16% today after the education media company lowered its guidance for fiscal year 2015. The provider of textbooks and other educational material has been negatively impacted by declining community college enrolment in the U.S, and weakening sales in South Africa. That led Pearson PLC (ADR) (NYSE:PSO) to lower its full year earnings guidance to a range of 70p-to-75p ($1.08-to-$1.16), down from a range of 75p-to-80p ($1.16-to-$1.24) previously forecast. Pearson PLC was not overly popular among the elite investors we track, who held just 0.30% of its shares, though their collective sentiment did improve slightly during the second quarter, to nine funds with holdings compared to five.

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We analyze three more stocks getting roughed up by traders today on the following page.

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