Why Are These 4 Stocks Imploding Today?

Having plunged shortly after the opening bell, the markets have regained most of the losses suffered in the first hours of trading today and could enter green territory before the day is through. However, such a scenario is highly unlikely for some stocks that are plunging today on the back of weak earnings reports posted yesterday after the market close. In this article we’ll take a look at why Rocket Fuel Inc (NASDAQ:FUEL), AVG Technologies NV (NYSE:AVG), Whole Foods Market, Inc. (NASDAQ:WFM) and Lannett Company, Inc. (NYSE:LCI) have fallen off a cliff today.

Investors are disappointed by Rocket Fuel Inc (NASDAQ:FUEL)’s latest financial report, despite earnings topping Wall Street estimates. The company reported revenues of $112 million, up by 9.5% year-over-year, and a loss of $3.19 per share. When adjusted for asset impairment costs and stock option expenses, the loss stands at $0.16 per share, better than analysts’ consensus estimate of a loss of $0.19 per share. The stock has opened lower today nonetheless and has continued its fall, currently being down by more than 18%.

Rocket Fuel Inc (NASDAQ:FUEL), an ad technology company, also announced the appointment of Randy Wootton as its new Chief Executive Officer. Having served as the company’s sales boss since March, Wootton faces a difficult task of turning the company around, after enduring several scandals. It all started in May 2014 when the Financial Times issued a report that accused Rocket Fuel of providing false viewing metrics for the ads it posted on behalf of Mercedes-Benz. Several lawsuits followed as investors complained about receiving misleading statements from the company’s management. Rocket Fuel has denied any wrongdoing and has since launched a product that allows marketers to check their ad campaigns for non-human traffic.

The company has managed to attract the attention of only a handful of hedge funds in our database, which together own a minor 2.1% of the company’s common stock. During the second quarter, the number of those funds invested in it rose to nine, with Jim Simons‘ Renaissance Technologies among them. In its latest 13F filing, the fund reported ownership of 347,900 shares of Rocket Fuel, a position initiated during the second quarter.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. S&P 500’s 48.7% gain) over the last 37 months (see the details here).

It’s a bad day for AVG Technologies NV (NYSE:AVG) shareholders as well, with the software company failing to meet Wall Street estimates for the third quarter. AVG Technologies posted revenues of $108 million, below estimates of $109.9 million, and a profit of $0.14 per share, significantly lower than the $0.42 per share expected by analysts. The report also states AVG Technologies expects full-year revenues to oscillate between $426 million-and-$430 million, while earnings are estimated at $1.80 per share. The stock is currently trading at $19.98 per share, down by 17% from yesterday’s closing price.

Roughly 8% of AVG Technologies NV (NYSE:AVG) common stock was held by 22 elite funds that we track at the end of June, up from 17 a quarter earlier. ClearBridge is optimistic about the prospects of the company, having boosted its stake by 15% to 394,911 shares. Joel Greenblatt, on the other hand, chose to reduce his exposure, cutting his stake by 12% to 273,031 shares of the software company.

Two more stocks that can’t catch a break today are detailed on the next page.

News of a slow down in sales growth for Whole Foods Market, Inc. (NASDAQ:WFM) has investors worried today, following the company’s latest financial report. The company reported a 0.2% year-over-year decrease in sales at established stores and a 6% increase in total sales, the weakest growth rate since 2010. For the three months ending September 27, 2015, Whole Foods Market announced revenues of $3.44 billion, up by 5.6% year-over-year, and earnings of $0.16 per share. Whole Foods also announced a $1 billion share buyback program and has pledged to increase its quarterly dividend by 4% to $0.135 per share.

During the second quarter, Whole Foods Market, Inc. (NASDAQ:WFM) lost some of its popularity among the funds we track, as the number of such funds that had investments in the company fell to 32, from 40 at the end of March. Jim Simons’ Renaissance Technologies held the largest stake in the company among those elite funds at the end of the second quarter, having reported ownership of 1.31 million shares. Cliff Asness is also bullish, having boosted his stake by nearly 700% to amass 844,591 shares at the end of June.

Shareholders of Lannett Company, Inc. (NYSE:LCI) are also feeling the heat, as the stock has plunged by more than 16% so far today, despite reporting better than expected results for the first quarter of its fiscal 2016. The pharmaceutical company registered $106.43 million in revenues, up by 14% year-over-year and slightly above the market’s expectations of $106.16 million, while its adjusted earnings of $0.99 per share were higher than the $0.89 projected by analysts. The stock dropped on the back of the announcement that Kremers Urban Pharmaceuticals, whom Lannett is in the process of acquiring, had lost a key customer, whose product lines accounted for $87 million of Kremers’ revenue and around $45 million of Lannett’s Pro Forma Combined Adjusted EBITDA for the last fiscal year.

At the end of the second quarter, 17 top hedge funds held a position in Lannett Company, Inc. (NYSE:LCI) and had control over 8.6% of the company’s common stock. Joel Greenblatt is betting big on this company with his fund, Gotham Asset Management, holding 1.72 million shares on June 30, up by 12% over the second quarter. Chuck Royce is also a fan, having increased his investment in the company by 177% to 429,281 shares.

Correction: This article was corrected to include the accurate adjusted and expected EPS figures for Lannett Company. 

Disclosure: None