Nothing differentiates the winners from the losers in the stock markets more than what they do when stock prices are crashing. Most legendary investors have built their fortunes by purchasing a stock when others were selling it, whereas a large number of retail investors have burnt their finger trying to chase a ‘high-flying’ stock. Keeping the quintessential stock market saying of ‘buy when others are selling, sell when others are buying’ in mind, we at Insider Monkey decided to compile a list of stocks that got brutally beaten during the third quarter, but at the same time saw their popularity increase among hedge funds. The top five stocks that made it to our list have all suffered losses of more than 20% during the third quarter, but were backed by at least 40 hedge funds at the end of September. Read further to know which stocks made the cut.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
#5 Huntsman Corporation (NYSE:HUN)
Investors with Long Positions (as of September 30): 45
Aggregate Value of Investors’ Holdings (as of September 30): $465.2 Million
Owing largely to the 25% drop that the stock Huntsman Corporation (NYSE:HUN) saw on a single day on September 28 after the company’s management issued an earnings warning, shares of the company ended the third quarter down by over 55%. However, several hedge funds saw this as a lucrative opportunity and the number of funds covered by Insider that disclosed owning a stake in the company jumped by 7 during the third quarter, though the aggregate value of investors’ holdings in it declined by more than half during the same period. Huntsman Corporation (NYSE:HUN)’s stock did managed to rebound in the fourth quarter, but still trades down 51.05% year-to-date. On Thursday, analysts at UBS AG reiterated their ‘Buy’ rating on the stock, but lowered their price target on it to $20 from $25. Billionaire Jim Simons‘ Renaissance Technologies initiated a stake in the company during the third quarter acquiring over 1.2 million shares.
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#4 Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ)
Investors with Long Positions (as of September 30): 49
Aggregate Value of Investors’ Holdings (as of September 30): $483 Million
Healthcare was one of the most beaten down sectors in the third quarter, but hedge funds by and large held on to their conviction on the sector during that period. Shares of Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) lost 24.5% during the third quarter onslaught, but have recovered since then and now are trading with year-to-date losses of 13.11%. The number of hedge funds that had a stake in the company increased by 8 during the July-September period, but owing largely to the decline that the company’s stock had the aggregate value of investors’ hooldings in the company dropped by $281 million during the same period. On November 9 Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) reported its third-quarter results, declaring EPS of $2.52 on revenue of $340.90 million, while analysts had expected it to report EPS of $2.56 on revenue of $348.15 million. Billionaire Ken Griffin‘s Citadel Investment Group increased its stake in the company by 50% to 271,054 shares during the same period.