While Wall Street rallied into green territory from the opening bell on Monday, Dillard’s Inc. (NYSE:DDS), Marriott International Inc. (NASDAQ:MAR), Starwood Hotels & Resorts Worldwide Inc. and Clovis Oncology Inc. (NASDAQ:CLVS) floundered in the red amid news of an earnings miss, a merger, and a possible delay in the regulatory approval for a new drug. We’ll take a look at these developments as well as the hedge fund sentiment towards each of these stocks.
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Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% over the last 38 months and outperformed the S&P 500 Index by 53 percentage points (see the details here).
Dillard’s Inc. (NYSE:DDS) has dropped today on above-average trading volume after reporting lower net sales of $1.43 billion for the third quarter of 2015, compared to $1.46 billion for the third quarter of 2014. The fashion apparel, cosmetics and home furnishings retailer said its sales in comparable stores for the period decreased by 4% year-over-year. Meanwhile, its net income slipped to $45.7 million, or $1.19 per share, compared to $55.2 million, or $1.30 per share in the same period last year.
“We are disappointed with our third quarter sales performance and in the resulting decline in profit. Share buyback remained a high priority, and we repurchased $175 million of stock under our share repurchase program,” Dillard CEO William Dillard II said.
During the quarter, the company bought $174.6 million of class A common stock under its $500 million share repurchase program. As of October 31, authorization of $117.5 million remained under the program, according to the company’s earnings release. At the end of June, 27 hedge funds out of the 730 in our database held 7.50% of the company’s outstanding stock.
We delve into the news surrounding Marriott and Starwood’s merger on the next page.
