At a time when all three indices are trading with losses, shares of J C Penney Company Inc (NYSE:JCP), California Resources Corp (NYSE:CRC), United States Steel Corporation (NYSE:X), Encana Corporation (USA) (NYSE:ECA) and Kinder Morgan Inc (NYSE:KMI) are trading lower than the market. In this article, let’s take a look at why investors are selling these stocks. We are also going to assess the hedge fund sentiment towards these stocks.
We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see more details here). That’s why we believe it is important to pay attention to the hedge fund sentiment; we also don’t like paying huge fees.
The first on the list is J C Penney Company Inc (NYSE:JCP), whose shares are off by almost 6% today after EPS estimates cuts. Analysts currently project the company to report fourth-quarter EPS of $0.25, down from the previous $0.31. Recently the retailer has experienced losses due to increased financing costs. In turn, it is likely to end the year with a balanced cash flow. Our data show that the smart money is optimistic on the company, with the number of hedge funds long J C Penney Company Inc (NYSE:JCP) having increased by four to 35 during the third quarter. Together they hold some 14.9% of the company’s common stock, while Jim Simons‘ Renaissance Technologies is the largest shareholder of J C Penney, owning 14.67 million shares valued at $136.3 million as of the end of September.
California Resources Corp (NYSE:CRC)’s stock has declined by roughly 12% after the company, in its goal of reducing long-term debt, has processed a bond exchange, in which, although the capital of their outstanding debt is reduced by $563 million, the interest costs increase at $21 million per year. Due to the falling prices of raw materials, the company does not expect another deleveraging transaction for the remainder of the year. Among the funds we track, California Resources (NYSE:CRC) lost some popularity during the third quarter, with a total of 31 funds reporting long positions in the company, versus 37 funds a quarter earlier. However, these funds amassed 29.3% of the company’s outstanding stock heading into the fourth quarter. George Soros’ Soros Fund Management reported owning 9.12 million shares of California Resources Corp (NYSE:CRC) in its latest 13F filing.
Next on our list is United States Steel Corporation (NYSE:X), whose stock is off by 10% after the analysts at Deutsche Bank downgraded the company to ‘Sell’ from ‘Hold’. The analysts also cut their price target to $5 per share from $13 per share. Overall, the company’s shares have fallen by 72% on a year-to-date basis. Hedge funds have been more pessimistic about the stock recently, with 25 hedge funds long United States Steel Corporation at the end of the third quarter, down from the 29 funds long the stock at the close of the previous quarter. Ken Griffin‘s Citadel Investment Group cut its stake by 87% in the quarter to 1.27 million shares worth $13.2 million, as reported in its latest 13F filing.
Another company that has had changes in their rating was Encana Corporation (USA) (NYSE:ECA). Even though the Canadian oil producer has received an upgrade to ‘Buy’ by analysts at Jefferies, shares have tumbled by almost 7%. In addition, the company decided to make hard cuts in capital spending budget by 2016, cutting 25% from this year; and it also announced plans to reduce its annual dividend to 6 cents on an annualized basis from 28 cents annually. Despite today’s decline, hedge funds have been optimistic on the stock, with 27 funds owning shares in the third quarter, up from the 26 funds three months earlier. Israel Englander‘s Millennium Management is the largest shareholder of Encana among the investors we follow. The fund increased its stake in the company by 62% during the third quarter to 23.3 million shares valued at $149.8 million.
Following the news of dividend cuts last week, Kinder Morgan Inc (NYSE:KMI)’s stock is down by another 4% today. Among the funds we track, 72 funds in our database were long Kinder Morgan Inc (NYSE:KMI) at the end of the third quarter, up from 64 funds three months earlier. Bain Capital‘s Brookside Capital was the largest holder of Kinder Morgan Inc (NYSE:KMI) stock at the end of the quarter among the funds we follow. In its latest 13F filing, Brookside Capital reported 16.3 million shares valued at $15.0 million.