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Hedge Funds Regret Selling These Stocks in Q4

Though the broader market is undergoing a correction this year, there are a few stocks which have managed to perform remarkably well despite the slump. It might look like an anomaly at first, but by and large, the reasons behind their outperformance are usually pretty obvious: being based on positive developments or news, or other catalysts. Of course, even the best investors don’t have a crystal ball and can’t always foresee the stocks that will deliver these good tidings in the near future. That’s why among some of the best performing stocks so far this year, there are a few names in which ownership of those stocks among hedge funds in our system declined noticeably during the fourth quarter. Having said that, in this article we will be focusing on the top five stocks that are doing well this year, but which witnessed a decline in their popularity among the more than 800 hedge funds covered by us during the fourth quarter.

At Insider Monkey, we track more than 800 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).

#5 Swift Transportation Co (NYSE:SWFT)

– Investors with Long Positions (as of December 31): 25

– Aggregate Value of Investors’ Holdings (as of December 31): $365.95 million

Let’s start with Swift Transportation Co (NYSE:SWFT), whose shares are trading up by 20.55% year-to-date, led by its fourth quarter earnings beat. During the fourth quarter, the ownership of the company among funds covered by us declined by 13. However, the aggregate value of hedge funds’ holdings in it did increase by 36.37% during the same period, even as the stock price declined, so clearly there were at least a few very bullish investors who did anticipate something positive on the horizon. For the fourth quarter, Swift Transportation Co (NYSE:SWFT) reported EPS of $0.53 on revenue of $1.09 billion, beating analysts’ expectations of EPS of $0.47, but missing on revenue expectations of $1.12 billion. Despite the rise in its stock this year, Swift Transportation Co is currently trading at a cheap forward P/E of 9.51. On February 29, analysts at JPMorgan Chase & Co. initiated coverage on the company’s stock with a ‘Neutral’ rating and $16 price target. Steve Cohen‘s Point72 Asset Management reduced its stake in the company by 78% to 577,800 shares during the fourth quarter.

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#4 Macy’s, Inc. (NYSE:M)

– Investors with Long Positions (as of December 31): 51

– Aggregate Value of Investors’ Holdings (as of December 31): $1.16 billion

After losing almost half of its market capitalization during the second-half of 2015, Macy’s, Inc. (NYSE:M)’s stock has rebounded swiftly this year and currently trades with year-to-date gains of 28.3%. Investors covered by us with long positions in the stock declined by 16 during the fourth quarter and the aggregate value of their holdings saw a drop of $434 million, which was due to the stock’s depreciation during the quarter. Shares of the largest department store operator in the U.S started rallying in January after David Einhorn-led Greenlight Capital revealed a large stake in the company and Mr. Einhorn speculated that due to its undervaluation,Macy’s could be a takeover target by private equity firms. Moreover, the fourth quarter numbers that the company released recently has added fuel to this rally. Whereas the Street had expected it to report EPS of $1.89 on revenue of $8.83 billion for the quarter, Macy’s, Inc. (NYSE:M) declared EPS of $2.09 on revenue of $8.87 billion. At the end of December, Greenlight Capital held nearly 6.74 million shares of the company.

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