Hedge Funds Brace for Impact: Top 10 Stocks to Dump Now

In this article, we discuss the top 10 stocks to dump now according to hedge funds as they brace for impact. If you want to see more stocks in this list, click Hedge Funds Brace for Impact: Top 5 Stocks to Dump Now

Elite hedge funds in the United States are exceedingly cautious with their long positions as the share prices have been heavily battered and the stock market has faced a major slump. According to Morgan Stanley, by mid-June, US hedge funds have slashed their net exposure to its lowest point since 2010. With the S&P 500 down 18% so far in 2022, prominent money managers have revealed significant bearish calls in their investment portfolios. 

Billionaire Ray Dalio’s Bridgewater Associates, for example, has opened 27 short positions recently worth €9.8 billion, in addition to disposing of US Treasuries, stocks, and corporate bonds. Alister Hibbert, a prominent BlackRock manager, also repositioned his portfolio to increase bullish bets on falling share prices. Growth equity hedge funds have also been hit hard by the massive technology selloff. 

The long-short equity hedge funds in the United States have reported a decline of approximately 14.1% in 2022 so far, and Morgan Stanley reports that European funds are also down by 8.3%. Hedge funds are aggressively taking up short positions to protect their portfolios. Some of the major hedge funds that have performed poorly in 2022 include Tiger Cub Chase Coleman’s Tiger Global Management, Lee Ainslie’s Maverick Capital, Alex Sacerdote’s Whale Rock Capital Management, and Dan Loeb’s Third Point

To brace for impact, elite hedge funds have dumped many prominent stocks and their bullish positions have also shifted to minimize losses. The stocks that lost favor of the smart money include Meta Platforms, Inc. (NASDAQ:META), Rivian Automotive, Inc. (NASDAQ:RIVN), and Peloton Interactive, Inc. (NASDAQ:PTON). 

Luis Louro / shutterstock.com

Our Methodology

We selected stocks that saw a decline of 15 or more long hedge fund positions in Q1 2022 as compared to the last quarter of 2021 for this list. Insider Monkey’s database of 900+ elite hedge funds was used to gauge the hedge fund sentiment around the holdings. For better context and comparison, recent analyst ratings are mentioned along with the hedge fund sentiment in the previous quarter. 

Hedge Funds Brace for Impact: Top Stocks to Dump Now

10. Meta Platforms, Inc. (NASDAQ:META)

Number of Hedge Fund Holders in Q1 2022: 200

 

Number of Hedge Fund Holders in Q4 2021: 224

Meta Platforms, Inc. (NASDAQ:META) is an American multinational metaverse company that owns internet platforms like Facebook, Instagram, and WhatsApp. Recently, the company has launched Meta Pay, a digital wallet that is dedicated to carry out transactions in the metaverse.

On June 22, BofA analyst Justin Post reiterated a Buy recommendation on Meta Platforms, Inc. (NASDAQ:META) with a $233 price target, citing Meta Platforms, Inc. (NASDAQ:META)’s new monetization features and the company’s decision to not administer commission from Facebook and Instagram content creators until 2024. 

However, growth fund managers seem bearish on large-cap tech in 2022. According to Insider Monkey’s Q1 database, the number of long Meta Platforms, Inc. (NASDAQ:META) hedge fund positions declined to 200 from 224 in the prior quarter. The total stakes owned by elite funds were $19.3 billion in Q1 2022, compared to $31.8 billion in Q4 2021. Ken Fisher’s Fisher Asset Management held the leading position in Meta Platforms, Inc. (NASDAQ:META), with more than 11 million shares worth $2.49 billion. 

Here is what Boyar Value Group has to say about Meta Platforms, Inc. (NASDAQ:META) in its Q4 2021 investor letter:

“Corporate executives can have many different reasons for selling shares (anticipation of tax law changes, philanthropy, diversification, and much more), but the sheer number of billionaire founders who sold shares in 2021 should raise eyebrows and might well be signaling a market top. Bloomberg’s Ben Steverman and Scott Carpenter report not only that Mark Zuckerberg of Meta Platforms Inc. (formerly known as Facebook) sold shares in his company almost every day last year but also that the founders of Google sold ~$3.5 billion worth of stock (the first time either Sergey Brin or Larry Page has sold shares since 2017).”

9. Sea Limited (NYSE:SE)

Number of Hedge Fund Holders in Q1 2022: 77

 

Number of Hedge Fund Holders in Q4 2021: 108

Sea Limited (NYSE:SE) is a Singapore-based global consumer internet company that specializes in e-commerce, digital entertainment, and online retail. For the March 2022 quarter, Sea Limited (NYSE:SE) posted a normalized loss per share of $0.80 and a GAAP loss per share of $1.40. These figures were above Street consensus by $0.42 and $0.36, respectively. 

On May 19, Barclays analyst Jiong Shao slashed the price target on Sea Limited (NYSE:SE) from $201 to $157 and maintained an Overweight rating on the stock. Amid reopening headwinds in Southeast Asia and difficult comps in the last year, the analyst noted that Sea Limited (NYSE:SE) performed well and reported largely in-line Q1 results.

Sea Limited (NYSE:SE) share price has fallen over 66% year to date as of June 27. In the first three months of 2022, hedge funds pulled out of Sea Limited (NYSE:SE) aggressively. In Q1, 77 hedge funds reported bullish positions in the company, compared to 108 funds in the earlier quarter. The total stakes in the firm also declined from $10 billion in Q4 2021 to $5 billion in Q1 2022. Chase Coleman’s Tiger Global Management is the leading position holder in Sea Limited (NYSE:SE), with 13.5 million shares worth $1.6 billion. 

In addition to Meta Platforms, Inc. (NASDAQ:META), Rivian Automotive, Inc. (NASDAQ:RIVN), and Peloton Interactive, Inc. (NASDAQ:PTON), elite funds are pulling out of Sea Limited (NYSE:SE). 

Here is what Baron New Asia Fund has to say about Sea Limited (NYSE:SE) in its Q1 2022 investor letter:

“Sea Limited, a global digital gaming and e-commerce company, detracted from performance for the period held. Similar to other online consumer businesses, Sea faced significant multiple compression in the quarter, exacerbated by a slowdown in user growth at its key Free Fire digital game and mounting investments in its e-commerce operation, particularly in new markets like Brazil. We exited our position as we lost confidence in the long- term unit economics in some of Sea’s new markets and were concerned by the simultaneous slowdown in revenue growth and increase in underlying cash burn.”

8. Roblox Corporation (NYSE:RBLX)

Number of Hedge Fund Holders in Q1 2022: 40

 

Number of Hedge Fund Holders in Q4 2021: 61

Roblox Corporation (NYSE:RBLX) is a California-based video game company that is known for its multiplayer online game platform, Roblox. Despite Roblox Corporation (NYSE:RBLX) being one of the most prominent metaverse players, the growth stock has taken a notable beating so far this year, with share price declining over 63% YTD as of June 27. Roblox Corporation (NYSE:RBLX) reported its Q1 2022 results on May 10, posting a loss per share of $0.27 and a revenue of $631.21 million, below consensus by $0.07 and $15 million, respectively. 

On June 17, Truist analyst Matthew Thornton downgraded Roblox Corporation (NYSE:RBLX) from Buy to Hold, lowering the price target to $29 from $36. According to the analyst, the digital entertainment group has outpaced the S&P 500 by 21 to 30 points since the Q1 results were published and Roblox Corporation (NYSE:RBLX) now remains the least favorable in the group given its valuation, revision trajectory, and exposure to macro headwinds. The analyst also observed that Roblox Corporation (NYSE:RBLX)’s May numbers were “weak again, particularly around DAUs”. 

In Q1 2022, the hedge fund sentiment around Roblox Corporation (NYSE:RBLX) declined. The long calls on the stock fell to 40 as compared to 61 in the preceding quarter. Cathie Wood’s ARK Investment Management held the biggest stake in the firm, comprising over 6 million shares worth $281.7 million. 

Here is what Tao Value has to say about Roblox Corporation (NYSE:RBLX) in its Q4 2021 investor letter:

“Roblox (RBLX) got significant more attention from both institutional & retail investors after Facebook announced to rename itself as Meta Platforms. I believe the price appreciation is largely attributed to the increased attention. On the business side, Roblox rolled out a few successful music events and also partnered with Netflix on testing long-form media consumption in the virtual world. Apple in its iOS 14.5 rolled out an impactful change for the digital advertising landscape by requiring all apps to ask users to “opt in”.

7. Willis Towers Watson Public Limited Company (NASDAQ:WTW)

Number of Hedge Fund Holders in Q1 2022: 49

 

Number of Hedge Fund Holders in Q4 2021: 66

Willis Towers Watson Public Limited Company (NASDAQ:WTW) is a London-based multinational insurance firm. The company posted its Q1 results at the end of April, reporting earnings per share of $2.66, above consensus estimates by $0.16. However, the GAAP EPS of $1.03 and the revenue of $2.16 billion fell short of analysts’ predictions by $0.74 and $74.21 million, respectively. 

On May 19, Raymond James analyst C. Gregory Peters removed Willis Towers Watson Public Limited Company (NASDAQ:WTW) from the firm’s Analyst Current Favorites list. The analyst still reiterated a Strong Buy rating on the stock with a $270 price target. 

Hedge fund sentiment around Willis Towers Watson Public Limited Company (NASDAQ:WTW) significantly dulled in Q1 2022, with 49 long hedge fund positions. Comparatively, 66 funds were bullish on the stock in the prior quarter. Jean-Marie Eveillard’s First Eagle Investment Management is the largest shareholder of the company, with about 4.8 million shares worth $1.13 billion. 

Like Meta Platforms, Inc. (NASDAQ:META), Rivian Automotive, Inc. (NASDAQ:RIVN), and Peloton Interactive, Inc. (NASDAQ:PTON), hedge fund fervor has declined around Willis Towers Watson Public Limited Company (NASDAQ:WTW). 

Here is what Artisan International Value Fund has to say about Willis Towers Watson Public Limited Company (NASDAQ:WTW) in its Q4 2021 investor letter:

“During the quarter, we made meaningful new investments in two UK domiciled companies, (one of which is) Willis Towers Watson (WTW). Long-term investors will recognize Willis Towers Watson since it was in the portfolio from 2018 to early 2021. We exited that investment after WTW agreed to merge with Aon. Unfortunately for WTW and Aon, that proposed merger was rejected by the US Department of Justice in July 2021. In fact, there is significant market power in this industry, which is what makes it a great business. That market power is exerted not with the insurance brokers’ corporate customers, but with their suppliers (insurance underwriters). We were surprised at Aon’s attempted merger, and our concerns regarding antitrust approval encouraged us to sell.

WTW operates two businesses: insurance brokerage and HR consulting. Both are market-leading with attractive financial profiles and mostly recurring revenue streams. Despite these strengths, WTW operates with lower margins versus peers. The margin opportunity is most pronounced in the insurance brokerage business. Management has slowly increased the insurance brokerage margin over time, but a large gap remains with best-in-class peers like Marsh & McLennan and AJ Gallagher. Management presented a plan to increase the insurance brokerage business’s margins 5% by year-end 2024. This plan follows the outline other insurance brokers have previously used to increase their margins—giving us confidence the targets are achievable.

The merger’s demise brought a new and experienced CEO, a new CFO and a refreshed shareholder-aligned board of directors. In addition, the merger’s cancellation transformed the company’s financial position. As part of the agreement, Aon paid WTW a $1 billion “break fee.” WTW also sold a re-insurance brokerage business for $3.25 billion along with the potential to earn $750 million through an earnout agreement. With the proceeds, WTW expects to repurchase approximately $4 billion of stock between the second half of 2021 and the end of 2022. With existing cash on hand and cash generation over the next three years, we estimate the company can return another $6 billion to shareholders through dividends and share repurchases representing over 20% of today’s market capitalization. We forecast earnings of approximately $20 per share in 2024—a price to earnings (P/E) ratio of 11.5X. We believe that valuation significantly undervalues this high-quality business.”

6. Peloton Interactive, Inc. (NASDAQ:PTON)

Number of Hedge Fund Holders in Q1 2022: 44

 

Number of Hedge Fund Holders in Q4 2021: 60

Peloton Interactive, Inc. (NASDAQ:PTON) is a New York-based exercise equipment and media company. So far this year, the shares have taken a 69% beating. Peloton Interactive, Inc. (NASDAQ:PTON) reported its Q1 results on May 10, with a GAAP loss per share of $2.27 and a revenue of $964.30 million, below market estimates by $1.39 and $6.69 million, respectively. 

Evercore ISI analyst Shweta Khajuria on June 17 cut the price target on Peloton Interactive, Inc. (NASDAQ:PTON) shares to $14 from $20 and reaffirmed an In Line recommendation on the stock. The analyst cited survey results and industry data, observing that consumer demand trends for home fitness equipment products remain soft and will likely be the same throughout this year. The analyst thus slashed fiscal 2023 and 2024 revenue and EBITDA estimates for Peloton Interactive, Inc. (NASDAQ:PTON), driven by lower Connected Fitness net additions. According to Evercore’s survey, only 9% people said that they would invest in at-home gym equipment over the next year, while 35% stated they are highly unlikely to be in the market for “at home” fitness machines, the analyst added.

Among the hedge funds tracked by Insider Monkey, 44 funds were long Peloton Interactive, Inc. (NASDAQ:PTON) at the conclusion of Q1 2022, compared to 60 funds in the preceding quarter. Philippe Laffont’s Coatue Management is one of the leading Peloton Interactive, Inc. (NASDAQ:PTON) shareholders, with 8.6 million shares worth $227.5 million. 

Here is what Merion Road Capital has to say about Peloton Interactive, Inc. (NASDAQ:PTON) in its Q1 2022 investor letter:

“Given what I have discussed so far you might be surprised that I built a new position in Peloton (“PTON”). PTON has had a rollercoaster ride in the public markets. Following their 2019 IPO at $29 the stock rocketed to over $160 at the peak of the covid hype, before tanking to its current price in the mid‐$20’s. The company has basically checked the box on any negative event you could think of. A few standouts include cutting guidance (May 2021, November 2021, January 2022), major strategic gaffes (overbuilding supply capacity, flip-flopping on price cuts), and poor/misleading communication (raising capital 2 weeks after stating there was no need to raise capital). So why would I own this?

Peloton (the product, not the stock) has a strong brand name, value proposition, and customer loyalty. Despite their woes the company has built an established base of users that should be highly valued. The market is currently telling us that their 2.7mm users are worth $2,600 per subscriber, or just 7.5x subscription gross profit. Simplistically this assumes 1/7.5x = 13% annual attrition which is more draconian than current levels of ~10% (of course giving no credit for future growth)…” (Click here to see the full text)

 

 

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Disclosure: None. Hedge Funds Brace for Impact: Top 10 Stocks to Dump Now is originally published on Insider Monkey.