Two stocks that started the day poorly and are still down in afternoon trading are Terex Corporation (NYSE:TEX) and Verizon Communications Inc. (NYSE:VZ). The former is down by more than 2.3%, while the latter has dipped by over 1.4%. Both stocks have rebounded slightly throughout the day from deeper morning losses. The sting in Verizon’s stock price was pricked by its CEO Lowell McAdam at an investor conference when he disclosed that the revenues for the next fiscal year will not significantly change from this year’s numbers. Terex on the other hand slid after JPMorgan Chase & Co. (NYSE:JPM) downgraded the stock to ‘Underweight’ from ‘Neutral’, lowering its price target to $23 from $25 in the process.
The main reason for JP Morgan’s Terex Corporation (NYSE:TEX) downgrade was its merger with Konecranes, which the analysts think is going to create more challenges than synergies. The investment bank’s analysts opined that the culture within the two companies was remarkably different and that this would lead to below-guidance revenues and EBIT following the merger. Both companies are currently engulfed in restructuring activities in order to harmonize their marriage. The stock is currently trading at a forward earnings multiple of 9.2 and is only 0.22% above its 52-week low.
A number of hedge funds reduced their holdings in Terex Corporation (NYSE:TEX) during the second quarter. At the end of June a total of 28 funds had $285.57 million invested in the company compared to 28 firms with $499.30 million in holdings at the end of March. The stock price fell by nearly 13.8% during this period. Among the company’s top ten stockholders in our database are David Shaw’s D E Shaw, which reduced its stake by the most, a 34% cut to 646,500 shares valued at $15.03 million during the April-June quarter. Richard S. Pzena‘s Pzena Investment Management topped the list, holding about 4.0 million shares valued at $92.93 million.
An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a fund with the knowledge and resources of D E Shaw can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 60 percentage points and returning 118%, while hedge funds themselves have collectively underperformed the market (read the details here).