What is Happening to These 4 Falling Stocks?

With investors concerned that trouble from the high yield debt market could spread into other sectors, shares of Encana Corporation (USA) (NYSE:ECA), GoPro Inc (NASDAQ:GPRO), Range Resources Corp. (NYSE:RRC), and Atara Biotherapeutics Inc (NASDAQ:ATRA) have fallen even further than the S&P 500 index this morning, for various reasons. Let’s find out why and examine relevant hedge fund sentiment towards these equities.

Why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 38-month period beginning from September 2012, returning 102% (see the details here).

With the price of front-month natural gas contracts at Henry Hub down by 6% in morning trading, shares of Encana Corporation (USA) (NYSE:ECA) are weak and getting weaker. Despite the company promising to cut its 2016 capital expenditures budget by 25% to $1.5 billion-to-$1.7 billion (from 2015’s $2.2 billion), shares of Encana Corporation (USA) (NYSE:ECA) have fallen by 8.86%. Investors worry that the company’s cash flow and profits will shrink if natural gas prices fall further. They also worry that the dividend isn’t sustainable if natural gas prices stay low. Encana cut its quarterly dividend to $0.06 per share from $0.07 per share on Monday in a move that will save it $185 million a year, but it may need to cut it further if natural gas and WTI prices continue tanking. Despite the fall, hedge fund sentiment in Encana has been stable. Of the close to 730 elite funds that we track, 27 funds were long Encana shares as of September 30, up by one from June 30.

The bad news just keeps getting worse for GoPro Inc (NASDAQ:GPRO) shareholders, as the value of the action camera maker’s stock fell by another 14.46% in morning trading today. This time around, investors are selling because analysts at Morgan Stanley downgraded the stock to ‘Underweight’ from ‘Equal Weight’ and lowered their price target for the stock to just $12 per share from $23 per share. Morgan Stanley analysts think GoPro could trade for as little as $5 per share if the pricing headwinds that the camera maker faces continue. GoPro lacks the ecosystem that more integrated hardware-software makers such as Apple Inc. (NASDAQ:AAPL) have. That being said, the downgrade isn’t exactly surprising, as GoPro Inc (NASDAQ:GPRO) has been a momentum stock on the way up out of the IPO gates and now on the way down and investment bank analysts have basically been drawing sloping lines each way to set their price targets. From that perspective, more analyst downgrades could be ahead, although if the stock falls far enough, GoPro becomes a value play at some point. 25 elite funds in our database were long 5.8% of the company’s float at the end of the third quarter.

On the next page, we examine why Range Resources Corp and Atara Biotherapeutics Inc. are also sinking today.

As previously mentioned, it’s been a tough quarter for natural gas producers as the price of natural gas in the U.S keeps falling. After breaching the key $2 per thousand cubic feet level on Friday, the price of the front-month natural gas contract at Henry Hub is now $1.88 per mcf. As one of the largest independent natural gas producers in the U.S, Range Resources Corp. (NYSE:RRC) shares are off by over 57% year-to-date and down by 5.62% today because of the negative price action. Bullish investors in Range Resources Corp. (NYSE:RRC) hope that the U.S will begin exporting more of its excess natural gas overseas in a move that will narrow the gap between domestic natural gas prices and international prices. If Congress lifts the crude export ban, the government is more likely to approve more LNG export terminals.

Wrapping up our list of red stocks is Atara Biotherapeutics Inc (NASDAQ:ATRA). Shares of the biotech company are off by nearly 25% after the company announced PINTA 745, its product candidate for the treatment of PEW in patients with end stage renal disease (ESRD) failed to achieve the primary efficacy endpoint. Because of the results, Atara will suspend further R&D on the product candidate. 11 elite funds in our database owned $293.74 million worth of Atara Biotherapeutics Inc (NASDAQ:ATRA) shares on September 30, versus nine elite funds with a collective stake worth $423.95 million on June 30.

Disclosure: None