Shares of Amyris Inc (NASDAQ:AMRS), Renewable Energy Group Inc (NASDAQ:REGI), Blucora Inc (NASDAQ:BCOR), Eros International plc (NYSE:EROS), and Blackhawk Network Holdings Inc (NASDAQ:HAWK) are sinking in afternoon trading as negative events affect each stock. With an eye toward relevant smart money sentiment, let’s take a closer look at why the five stocks are dropping.
Why do we track smart money 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 37-month period beginning from September 2012 (read more details here).
Amyris Inc (NASDAQ:AMRS) is a small-cap stock with an average volume of 242,772 shares traded daily, and whose shares rallied from $1.58 to $2.50 over the course of a few weeks on the back of a strong rally in crude. Given crude’s recent retracement and Amyris announcing that it wants to raise $50 million of convertible senior notes due in 2019, some investors are predictably heading for the exits/taking profits in anticipation of some future hedging by the convertible bond buyers. Shares are down by 22.5% so far today. Amyris expects to price the transaction on or before October 15.
Renewable Energy Group Inc (NASDAQ:REGI) is down by 9.7% after the company lowered its third quarter adjusted EBITDA guidance to negative $7 million-to-$13 million from the company’s previous guidance of flat-to-positive EBITDA of $10 million. The company also guided for a net loss of $9 million-to-$15 million. President and CEO Daniel J. Oh said:
“Throughout the quarter, we experienced a volatile commodity environment coupled with a significant decline in RIN prices. Feedstock prices did not decline as significantly as energy prices and RINs during the quarter, mainly due to continued high industry production levels in anticipation of a retroactive reinstatement of the federal biodiesel mixture excise tax credit.”
The guidance cut doesn’t bode well for next year’s earnings and Renewable Energy Group’s 2016 EPS could take a hit. According to our data of around 730 elite funds, hedge funds were bullish on Renewable Energy Group Inc (NASDAQ:REGI) in the second quarter. A total of 15 funds reported stakes worth $68.91 million (representing 13.60% of the float) in the latest round of 13F filings, versus 15 funds and $49.39 million respectively a quarter earlier.
Investors are selling Eros International plc (NYSE:EROS), a leading company in the Indian film entertainment industry, for the second day in a row after the company’s investor day underwhelmed investors. India is a huge market and will become even bigger over time. Shares could use a little breather and pullback after rallying by almost 40% year-to-date.
On the next page, we’ll analyze the catalysts that are negatively affecting Blucora and Blackhawk Network Holdings.