Despite today’s healthy jobless claims report, the stock market has inched down since the bell, with the shares of Sunedison Inc (NYSE:SUNE), Freeport-McMoRan Inc (NYSE:FCX), Chesapeake Energy Corporation (NYSE:CHK), ArcelorMittal SA (ADR) (NYSE:MT), and Derma Sciences Inc (NASDAQ:DSCI) are among the top losers. Let’s take a closer look at the reasons behind their declines.
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 more details here).
Sunedison Inc (NYSE:SUNE) fell by over 10% in early morning trading before rallying back to some 3% in the red, after the analysts at Axiom Capital downgraded the company, stating that investors no longer believe management’s forward guidance after the string of bad misses. Sunedison Inc (NYSE:SUNE) shares remain extremely volatile after the company reported disappointing third quarter earnings. Axiom has a ‘Sell’ rating and a $2 price target. Our data show many hedge fund managers, including John Hempton and David Einhorn disagree with Axiom (see Einhorn’s recent comments on Sunedison). Of the around 730 elite funds we track, 93 funds owned $5.68 billion of Sunedison’s shares on June 30, accounting for 69.10% of the float.
In other news, Freeport-McMoRan Inc (NYSE:FCX) has lost 5.37% as copper prices remain weak due to soft global macro-economic conditions. Although the Chinese stock market has rallied substantially from its August bottom, copper prices hit a six year low today, with the commodity trading for $2.183 a pound in New York. The analysts at Goldman Sachs don’t think copper prices will rally much over the next two years, with the investment bank forecasting copper prices to fall to $4,800 a ton by December 30, 2015 and $4,500 a ton by the end of 2016. Weak copper prices mean softer revenues for Freeport-McMoRan Inc (NYSE:FCX). Activist investor Carl Icahn is betting on Freeport-McMoRan and went activist on the company a couple of months ago (see article)
On the next page, we examine why Chesapeake Energy Corporation, ArcelorMittal, and Derma Sciences are down.