As the markets have been trading lower on Tuesday, with major indices losing over 1.50%, several stocks have been declining more significantly, registering double-digits slumps in percentage terms. In this article we will focus on Teck Resources Ltd (USA) (NYSE:TCK), AgroFresh Solutions Inc (NASDAQ:BLVDU), and HORSEHEAD HOLDING CORP. (NASDAQ:ZINC), and will assess their weak performance through the prism of the hedge fund sentiment towards them. Often stocks lose ground after investors overreact on a piece of news and looking whether the smart money is bullish on the stock can prevent some retail investors from selling in fear of bigger losses and can create buying opportunities for others.
Hedge fund sentiment is an overlooked metric, because it can be analyzed mainly by following the investors’ 13F filings, which are usually issued with a delay of 45 days from the end of a calendar quarter. However, our research, which used a 60-day delay, showed that analyzing equity portfolios of some of the best-skilled hedge funds can actually provide investors with some insights regarding the trends in the industry. For example, we determined that these funds’ most popular small-cap ideas can beat the market by as much as 95 basis points per month. Our strategy follows this approach by focusing on a portfolio of 15 favorite small-cap stocks among hedge funds and it has returned 118% since it went live in August 2012, against around 59% gains showed by the S&P 500 ETF (SPY) during the same period (read more details here).
With this in mind, let’s start by taking a closer look at the development that sent Teck Resources Ltd (USA) (NYSE:TCK)‘s stock almost 10% down today. The decline came on the back of the deal between Total SA (ADR) (NYSE:TOT) and Suncor Energy Inc. (USA) (NYSE:SU) that involves the sale of Total’s 10% stake in the Fort Hills oil sands project to for $310 million. Teck holds a 20% interest in the project, which values it at around $610 million, compared to the net carrying value of $2.3 billion at the end of June. The mining company took another hit last week after Moody’s downgraded its credit rating to ‘junk’ citing Teck Resources Ltd (USA) (NYSE:TCK)’s spending on the Fort Hills project and underperforming commodity prices.
Overall, Teck’s stock is down by over 60% year-to-date and the hedge fund sentiment doesn’t suggest an upside in the near future. At the end of June, only 15 funds from our database held $97.69 million worth of shares, up from 12 investors with stakes valued at $35.33 million in aggregate a quarter earlier. However, despite the improvement of these figures (amid a 27% drop of the stock during the second quarter), hedge funds amassed only 1.70% of Teck Resources Ltd (USA) (NYSE:TCK)’s outstanding stock at the end of June. Among them, the largest shareholder is Jonathan Barrett and Paul Segal’s Luminus Management, which owns 4.75 million shares as of the end of June, a new position in the fund’s equity portfolio. On the second spot is Dmitry Balyasny’s Balyasny Asset Management, which added a stake of 2.44 million shares during the quarter. Another notable investor, Jim Simons’ Renaissance Technologies disclosed a new stake containing 262,500 shares. However, all three funds allocated small portions of their equity portfolios towards the investment in Teck Resources.
AgroFresh Solutions Inc (NASDAQ:BLVDU) started trading earlier today after the blank check company Boulevard Acquisition Corp completed the purchase of AgroFresh Solutions, a former subsidiary of Dow Chemical Co (NYSE:DOW). The stock’s first day of trading was marked by a 14% slump, but the hedge funds were excited about the blank check company’s prospects at the end of June, which might suggest that it might rebound. As of the end of June, 22 funds from our database reported stakes with an aggregate value of $107.15 million, representing nearly 28% of the company. It was a significant improvement from 12 investors owning $103.75 million worth of stock at the end of March. Among these investors, Marc Lasry‘s Avenue Capital has disclosed ownership of 9.71 million shares (Mr. Lasry was one of the earliest supporters of Boulevard Acquisition and agreed to serve as Chairman on the board of AgroFresh Solutions Inc (NASDAQ:BLVDU)).
HORSEHEAD HOLDING CORP. (NASDAQ:ZINC), which slid by over 16% today and extended its year-to-date decline to 73%. Today’s fall was not marked by any significant developments and comes in contradiction with the latest updates from analysts at FBR & Co., which last week initiated coverage on the stock with ‘Outperform’ rating and a price target of $12.00 per share. Earlier this month, Oppenheimer reiterated its ‘Outperform’ outlook with a price target of $17.00, which represents a huge premium on the current price. A bullish outlook on HORSEHEAD HOLDING CORP. (NASDAQ:ZINC) is also suggested by hedge funds, as 15 of them (among those we track) held $172 million worth of stock at the end of June, almost unchanged over the quarter and equal to 26% of the company. Moreover, Mohnish Pabrai’s Dalal Street seems to be the most fond of the company as it has increased its holding to 7.48 million shares a couple of months ago, from 6.33 million shares held at the end of June.