Hedge funds are able to charge their clients high fees because of their ability to deliver superior returns and outperform benchmarks. However, this doesn’t mean that they are infallible stock pickers who don’t make mistakes, especially when considering short periods of time, as many of them have a long term focus. Nonetheless, in this article we’ll take a look at some of the stocks they were buying in the fourth quarter, which have suffered extremely poor runs to open the year. While many stocks have suffered losses in 2016 due to a decline in the overall market, these stocks have been pounded particularly hard. We decided to compile a list of five of these stocks and discuss their performance and future outlook, beginning with Yelp.
At Insider Monkey, we track more than 700 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details here).
As mentioned, we’ll start with Yelp Inc (NYSE:YELP), which saw its ownership among the hedge funds in our system increase by 55.5% to 42 funds during the fourth quarter, while the aggregate value of their holdings in it swelled by 98% to $1.02 billion during the same period. At the end of December, these 42 hedge funds owned 47.10% of the outstanding shares of Yelp Inc (NYSE:YELP). Shares of the company were trading down by more than 45% year-to-date a few days ago, however they have rallied since then and now trade with losses of 27% for the year. For its fourth quarter, Yelp reported EPS of $0.11 on revenue of $153.70 million, both of which topped analysts’ projections, as they collectively anticipated Yelp to post a loss of $0.03 per share on revenue of $152.35 million. Yelp is currently in the midst of a controversy after it fired an employee for writing a blog slamming the sub-par salary the company pays to entry level employees. On February 19, analysts at Tigress Financial upgraded Yelp Inc (NYSE:YELP) to ‘Buy’ from ‘Neutral’ while maintaining their $18.38 price target on it. Sahm Adrangi‘s Kerrisdale Capital reduced its stake in the company by 55% to 338,561 shares during the fourth quarter.
LinkedIn Corp (NYSE:LNKD) has lost almost half of its market capitalization this year with more than 70% of that loss coming in a single day after the company reported its fourth quarter numbers and provided dismal guidance. During the fourth quarter, the number of hedge funds in our system with long positions in the stock increased to 48 from 38 and the aggregate value of their holdings also saw a 35.6% jump, to $2.40 billion. Though some market participants were surprised by the magnitude of the decline that LinkedIn Corp (NYSE:LNKD)’s stock suffered following the release of its fourth quarter financial results, others reasoned that this was bound to happen, as the sales of the company have been on a decline and it was trading at an unrealistic valuation. Moreover, some analysts also believe that the user engagement numbers the company released in previous few quarters were flawed and that those discrepancies are catching up to the company now in its results. On February 22, analysts at Goldman Sachs downgraded LinkedIn Corp (NYSE:LNKD) to ‘Buy’ from ‘Conviction Buy’, though they did still include the company in their list of top five Internet stocks to buy in 2016. Alex Snow‘s Lansdowne Partners increased its stake in the company by 6% to 1.24 million shares during the fourth quarter.
Head to page two to see the three other stocks which have disappointed bullish hedge funds in 2016.