At a time when the three big indexes, the S&P, NASDAQ, and Dow Jones, are roughly flat, investors are selling Vale SA (ADR) (NYSE:VALE), Vanguard Natural Resources, LLC (NASDAQ:VNR), Weatherford International Plc (NYSE:WFT), Stone Energy Corporation (NYSE:SGY), and MagneGas Corporation (NASDAQ:MNGA) for various reasons. Let’s find out why.
Given that Insider Monkey has done a lot of research into what the smart money likes and doesn’t like, let’s also analyze relevant hedge fund sentiment toward the stocks. But 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 36 month period beginning from September 2012 (see the details here).
Despite the price of iron ore rebounding above $40 per metric ton, shares of Vale SA (ADR) (NYSE:VALE) are off 4.06% in morning trading after Brazil froze some of the Brazilian assets of Vale SA (ADR) (NYSE:VALE) and BHP Billiton Limited (ADR) (NYSE:BHP) because the two companies’ joint venture, Samarco, was in the wrong for a massive dam rupture that killed 16 people and caused a great deal of environmental damage. In a ruling last Friday, a Brazilian judge stated that Vale and BHP could be responsible for the disaster despite Samarco being a somewhat independent company from the two. The Brazilian government could win up to $5 billion in damages (Samarco doesn’t have enough assets to cover the damages so the government is targeting Vale and BHP).
Investors are selling Vanguard Natural Resources, LLC (NASDAQ:VNR) as the company is the latest energy corporation to follow Kinder Morgan and cut its dividend distribution on the back of weak energy prices. According to the company, Vanguard Natural Resources will pay a cash distribution of $0.03 per common unit for the month of January 2016, or 75% below the company’s $0.1175 distribution paid last month. Shares of Vanguard Natural Resources, LLC (NASDAQ:VNR) are off by 11% on the news. A total of 3 funds from our database owned 0.30% of Vanguard’s float on September 30.
On the next page, we examine Weatherford International, Stone Energy Corporation, and MagneGas Corporation.
Seeing as Brent prices recently hit lows not seen since 2004, and the crude market is perhaps 2 million barrels/day oversupplied, many investors hit the sell button on oil services company Weatherford International Plc (NYSE:WFT) today, as shares of the company retreated by 1.78% in afternoon trade. Further muddling the bull case is the news that the Department of Justice recently notified Halliburton Company (NYSE:HAL) and Baker Hughes Incorporated (NYSE:BHI) that the two companies will need to make additional concessions to win the U.S. government’s approval on their merger. The U.S. government’s refusal to approve the Baker Hughes/Halliburton merger makes any merger between Weatherford International Plc (NYSE:WFT) and another oil service giant more problematic.
Stone Energy Corporation (NYSE:SGY) is another casualty in today’s WTI/Brent sell-off, as shares of the independent E&P are 15.4% lower in afternoon trading. Because the company is highly leveraged and isn’t profitable, Stone Energy Corporation (NYSE:SGY) will likely remain a high beta function of WTI price swings. Of the around 730 elite funds we track, 15 funds were long about 9.40% of the float, according to the latest round of 13F filings, with Jim Simons’ Renaissance Technologies owning 441,624 shares.
The bears in MagneGas Corporation (NASDAQ:MNGA) are in full force, as shares of the company have fallen by 32% because of a Seeking Alpha article calling for a 92.9% downside of the stock. In the bearish article, the author writes that an invesgiation shows MagneGas Corporation (NASDAQ:MNGA)’s auditor was barred by the SEC for “falsified and backdated audit documents” and that company insiders have failed to file requisite SEC filings in a timely fashion. In addition, the author notes that Magnegas products are 30% slower and 26% more expensive than competitors’.