Although they opened lower this morning, the U.S stock market’s main indices have risen back up to yesterday’s closing price and are hovering around that level, with oil prices hobbling around without a clear direction today. In this article we’ll take a look at some of the stocks that opened lower and have stayed in the red: TransDigm Group Incorporated (NYSE:TDG), HCP, Inc. (NYSE:HCP), ONEOK, Inc. (NYSE:OKE), Northstar Realty Finance Corp (NYSE:NRF), and RetailMeNot Inc (NASDAQ:SALE). We’ll also see how top hedge fund managers were trading these stocks recently.
An everyday investor doesn’t have the same resources and capabilities to analyze different publicly-traded companies as hedge funds do. This is why it is a good idea to see what stocks hedge funds like the most and try to imitate some of their bullish moves in an attempt to reap market-beating returns. At Insider Monkey, we follow the activity of several hundred of the best-performing hedge funds as part of our strategy. We analyze their 13F filings and use the data to see what stocks they are collectively bullish on. Through extensive research we have determined that the best approach to outperform the broader indices is to follow hedge funds into their top small-cap ideas. In our backtests, a portfolio of the 15 most popular small-cap stocks generated monthly alpha of 81 basis points, versus 0.7 percentage points posted by hedge funds’ top large- and mega-cap picks (see more details here).
Shareholders of TransDigm Group Incorporated (NYSE:TDG) may have a few extra wrinkles this morning, as the stock fell by as much 14% during the first hours before regaining some of the lost ground. The maker of aircraft components posted disappointing fourth quarter results, missing Wall Street’s estimates. TransDigm reported revenue of $701.7 million, up by nearly 20% year-over-year, and adjusted earnings of $2.27 per share, up from $1.66 per share reported a year ago. Still, it was not enough to please market participants, as analysts were forecasting a profit of $2.31 per share on the back of $738 million in revenue.
Hedge fund sentiment towards TransDigm Group Incorporated (NYSE:TDG) improved during the third quarter, as the number of long hedge funds positions increased to 51 by the end of September, from 38 at the end of June. Stephen Mandel is keeping an eye on this stock, which accounts for roughly 2% of his public equity portfolio. According to its latest 13F filing, Mandel’s Lone Pine Capital holds 2.21 million shares of TransDigm, unchanged over the quarter.
HCP, Inc. (NYSE:HCP) released its fourth quarter results before the opening bell, topping analysts’ estimates, and yet the stock is deep in the red. It seems investors were not happy with the company’s forward guidance and have pushed shares down by 11% this morning. The real estate investment trust (REIT) posted a profit of $374.9 million or $0.80 per share, exceeding expectations of $0.78 per share. Revenue came in at $668 million, up by 10.6% year-over-year and above the consensus of $638 million. The big red flag was the company’s FFO estimate of $2.74-to-$2.80 per share, while analysts were looking for $3.17 per share. FFO, or Funds From Operations, is a figure used by REITs to denote earnings adjusted for depreciation and amortization.
HCP, Inc. (NYSE:HCP) is not a very popular stock among the hedge funds we follow, as only 17 of the funds in our database reported a long position in this stock as of the end of September. Jim Simons‘ Renaissance Technologies reported an 86% increase in its stake, to 1.74 million shares valued at $64.7 million at the end of September.
Shares of ONEOK, Inc. (NYSE:OKE) are tumbling as well after the stock was downgraded by analysts at Robert W. Baird. According to a report released on Monday, the firm downgraded the stock to ‘Underperform’ from a previous rating of ‘Neutral’. The analysts also revised their price target, cutting it to $24 per share, just below the previous estimate of $25 per share. The stock is currently trading around the $21.65 level, down by 6.5% from yesterday’s closing price.
At the end of September, only 2.7% of ONEOK, Inc. (NYSE:OKE)’s common stock was held by 20 elite funds in our system, down from 22 at the end of the second quarter. Eric W. Mandelblatt‘s Soroban Capital Partners boasts the largest holding of this stock among the funds we track, a position initiated during the third quarter. In its latest 13F filing, Soroban indicates ownership of 2.04 million shares of ONEOK.
We’ll get to the dire performance of Northstar Realty and RetailMeNot on the next page.