Hedge Funds Are Glad They Sold Off These Stocks in Q4

During the fourth quarter, the smart money investment firms tracked by Insider Monkey were quick to withdraw their collective support from some well-known companies across various sectors, just before their stock prices plummeted in the January-to-February period. This insight into hedge fund managers’ successful moves drives home the importance that should be placed upon tracking them, something which Insider Monkey has been at the forefront of for years. Of course, even their collective wisdom is not always right, and we are the first to admit that as well and present both their successes and failures. But we know through our research that the collective stock picks of a select group of top investors like those that we track can outperform the market over the long-term. With that in mind, in this article we’ll examine five potholes that hedgies managed to avoid this year by getting out of stocks in the final quarter of last year.

The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).

#5 Anacor Pharmaceuticals Inc (NASDAQ:ANAC)

– Investors with Long Positions (as of December 31): 24

– Aggregate Value of Investors’ Holdings (as of December 31): $1.08 Billion

The stock price of the $2.77 billion biopharmaceutical company slumped by 43.5% during the first two months of this year. It was fortuitous then that the number of hedge funds in our system holding the company in their portfolios dropped by 33% during the fourth quarter, while the subsequent value of their aggregate holdings slid by 28%. In its recently released financial results for the fourth quarter, Anacor Pharmaceuticals Inc (NASDAQ:ANAC) delivered a net loss of $0.43 per share, which was $0.13 below expectations, while revenue of $21.2 million also missed the mark widely, by $6.73 million. William Leland Edwards‘ Palo Alto Investors reduced its stake in Anacor Pharmaceuticals Inc (NASDAQ:ANAC) by nearly 5% during the final three months of 2015, to 2.19 million shares.

#4 Platform Specialty Products Corp (NYSE:PAH)

– Investors with Long Positions (as of December 31): 20

– Aggregate Value of Investors’ Holdings (as of December 31): $971.64 Million

During the fourth trimester, the number of hedge funds owning Platform Specialty Products Corp (NYSE:PAH)’s stock dropped by half, even though the concentration of their aggregate investments still amassed 35.9% of the company’s float. Those who bailed on the global specialty chemicals business avoided a 44.7% decline in the company’s stock price in the first two months of this year. The company announced the appointment of its new CEO in December of last year, which has only added to the uncertainty surrounding a relatively newly-listed company which lacks an airtight long-term strategy. A total of three acquisitions were made by Platform last year, with two of them closing in the final quarter of 2015. Hence, the company is using the SEC’s 15-day grace period to delay filing its annual financial report. Murray Stahl reduced his fund Horizon Asset Management’s stake in Platform Specialty Products Corp (NYSE:PAH) by 26% to 4.07 million shares during the fourth quarter.

#3 Monster Worldwide, Inc. (NYSE:MWW)

– Investors with Long Positions (as of December 31): 20

– Aggregate Value of Investors’ Holdings (as of December 31): $58.16 Million

Through the first two months of the year, Monster Worldwide, Inc. (NYSE:MWW)’s stock depreciated by 47.99%. The company not only delivered disappointing fourth quarter financial results but its EPS guidance range of $0.06 to $0.10 for the first quarter was also well below the consensus estimate of $0.13. North America led the decline in sales as revenue from the region dipped by 8% during the final three months of 2015 on a year-over-year basis. D E Shaw trimmed its Monster Worldwide, Inc. (NYSE:MWW) holding by 8% to 2.89 million shares during the fourth quarter, during which time the number of hedge funds with long positions in the company fell by 35%.

#2 Restoration Hardware Holdings Inc (NYSE:RH)

– Investors with Long Positions (as of December 31): 33

– Aggregate Value of Investors’ Holdings (as of December 31): $1.01 Billion

The number of hedge funds holding shares of the $1.66 billion luxury home furnishings retailer dropped by six during the October-to-December period, while their aggregate investments slid by 4.1%. Following disappointing fourth quarter financial results due to pressure on margins from discounting, as well as an abysmal outlook, Restoration Hardware Holdings Inc (NYSE:RH)’s stock price cratered by more than 52.18% in the first two months of this year. This has led to a number of recent price target revisions. Nomura took its price target on the stock down to $85 from $115, while Cowen and Company now expects the stock price to reach $47, down from its earlier estimate of $64. Pasco Alfaro and Richard Tumure‘s Miura Global Management trimmed its Restoration Hardware Holdings Inc (NYSE:RH) holding by 1% to 1.37 million shares during the fourth trimester.

#1 Sunedison Inc (NYSE:SUNE)

– Investors with Long Positions (as of December 31): 50

– Aggregate Value of Investors’ Holdings (as of December 31): $512.32 Million

Fianlly, there were 23 fewer investors in our database with Sunedison Inc (NYSE:SUNE) in their portfolios at the end of the fourth quarter than at the start of it, though their aggregate investments still represented about 31.8% of the company’s float. The lucky leavers missed a stock plunge of more than 61% in the first two months of this year. The company is also delaying its 10-K filing as it addresses a probe by an Audit Committee related to issues brought by former and current employees which pose questions about its financial position. Anand Parekh‘s Alyeska Investment Group cut its Sunedison Inc (NYSE:SUNE) stake by 19% to 4.84 million shares during the fourth quarter.

Disclosure: None