Why Are These Four Stocks Plunging Today?

With WTI futures down by 1.8%, Brent prices off by 0.43%, and all three indexes well in the red, shares of Teekay Corporation (NYSE:TK), Golar LNG Limited (USA) (NASDAQ:GLNG), Energy Transfer Equity LP (NYSE:ETE), and Shaw Communications Inc (USA) (NYSE:SJR) are down considerably more than the market. Let’s take a closer look at the underlying catalysts causing investors to sell.

Given that Insider Monkey has done a lot of research into what the smart money likes and doesn’t like, let’s also analyze relevant hedge fund sentiment toward the 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 have 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).

Teekay Corporation (NYSE:TK) shares have lost 58% after the company announced that it is cutting its quarterly dividend by 90% to $0.055 per share from the previous $0.55 per share. Teekay Corporation (NYSE:TK) is cutting its dividend distribution because the company needs to use the cash flow to pay down debt and to fund future profitable capital expenditures. Teekay’s high cost of equity has made financing difficult for the company in the challenging energy environment. As a result of its decision, the analysts at RBC Capital have downgraded the stock to ‘Sector Perform’ from ‘Outperform’ and have lowered their price target to $16 from $52.

Not surprisingly, shares of fellow energy shipper Golar LNG Limited (USA) (NASDAQ:GLNG) are down by 12% today, as investors wonder whether Golar LNG Limited (USA) (NASDAQ:GLNG)’s dividend is sustainable too. Given that Golar’s cost of equity rises as its stock falls, investors hope Golar management doesn’t make the same decision as Teekay management did. According to our data, 39 elite funds were long Golar LNG at the end of the third quarter, down by 5 from the number of funds long the stock at the end of June 30. John Burbank‘s Passport Capital cut its holdings in the stock by 44% during the third quarter.

On the next page, we examine Energy Transfer Equity LP, and Shaw Communications Inc (USA).

Given the unseasonably warm winter and the weak global macro-economic climate, demand for crude is weaker than before. Given Saudi Arabia’s insistence on pumping as much crude as possible and Iran’s impending 0.5-1 million bpd of incremental exports next year, supply is also higher than it should be. Compounding the supply and demand problem are oil inventories, which sit at multi-decade highs. Although midstream companies are more insulated from the commodity price carnage than E&P producers, they still have taken a big hit nevertheless. Shares of Energy Transfer Equity LP (NYSE:ETE) are down by another 8.77% today as investors worry that the company could do a ‘Kinder Morgan’ and cut its dividend distribution in light of the challenging industry conditions. While Energy Transfer Equity LP (NYSE:ETE) shares only yield 8.7% (not yet in danger territory), any additional increases in the yield will make financing the company’s growth capital expenditures more expensive. Bulls need for crude prices to bottom in order for this stock to do well.

Shaw Communications Inc (USA) (NYSE:SJR) shares have declined by some 10% after the telecom announced it is acquiring Mid-Bowline Group Corp and its subsidiary WIND Mobile Corp. for an enterprise value of around CAD 1.6 billion or $1.15 billion. WIND is Canada’s largest non-incumbent wireless provider, serving around 940,000 subscribers. Investors are selling Shaw Communications Inc (USA) (NYSE:SJR) because they think management has overpaid. Amid the acquisition announcement, the analysts at Howard Weil downgraded Shaw shares to ‘Sector Perform’ from ‘Ouperform’. Hedge funds have been ambivalent on Shaw Communications Inc (USA) (NYSE:SJR), as only 15 funds from our database owned 1.7% of the company’s float on September 30.

Disclosure: none