Shares of Windstream Corporation (NASDAQ:WIN), Linn Energy LLC (NASDAQ:LINE) and eBay Inc (NASDAQ:EBAYV) have all lost significant value so far today. Windstream’s stock lost around 9% on Monday morning and then slightly recovered, currently trading 2.30% in red. The fall follows UBS downgrading the stock to a ‘Sell’ rating from their previous ‘Neutral’ rating. The analyst firm also set a $5 price target on the stock. Linn shares declined by as much as 8.42% in trading this morning to a low of $7.61. Meanwhile, eBay’s EBAYV shares, trading on an as-issued basis ahead of the firm’s official split from PayPal (trading under PYPLV under the same circumstances), slid as much as 6.65% to $25.83 per share, though they’ve since rebounded and are now down by just over 2%. By contrast, EBAY shares reached a high of $63.74 per share today, up by 2.20%.
The plunge of these shares’ prices today, however, does not necessarily coincide with how confident hedge funds felt about the stocks during the first quarter. Nonetheless, before delving deeper into Windstream Corporation (NASDAQ:WIN) and Linn Energy LLC (NASDAQ:LINE) losing support from the smart money and eBay Inc (NASDAQ:EBAYV) experiencing the opposite, let’s first discuss why exactly Insider Monkey is interested in hedge fund activities.
Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 135% over the ensuing 34 months, outperforming the S&P 500 Index by nearly 80 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
Considering this, we’re going to view the latest key hedge fund activity concerning Windstream Corporation, Linn Energy LLC and eBay Inc.