Why Are These Stocks Deep in Red Territory Today?

Most U.S stocks are wobbling up and down without any clear direction today, as the latest round of records from the Federal Open Market Committee’s meeting minutes have brought more confusion rather than clarity regarding a potential rate hike in December. There are, however, several stocks that have not followed the overall trend and are deep in red territory this afternoon. Let’s find out why investors are pushing Kirkland’s, Inc. (NASDAQ:KIRK), Stage Stores Inc (NYSE:SSI), Best Buy Co Inc (NYSE:BBY) and Chesapeake Energy Corporation (NYSE:CHK) lower today.

But first, let’s take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 53 percentage points, returning 102% (read the details here). Follow the smart money into only their best investment ideas all while avoiding their high fees.

Kirkland’s, Inc. (NASDAQ:KIRK)’s latest quarterly report has piled more misery onto its shareholders, as shares tumbled by more than 30% in the first hours of trading today. The U.S retailer of home decor and gifts posted a third quarter loss of $0.04 per share, adjusted for pretax gains, down from earnings of $0.07 per share a year ago and below estimates of a $0.04 profit per share. Although revenues increased by more than 10% to $129.2 million, they were still below analysts’ consensus of $131 million. Kirkland’s also revised downward its fourth quarter guidance, reducing revenue estimates to $197 million-to-$200 million from previous projections of $200.1 million, while earnings are now expected to range between $0.88 and $0.95 per share, down from previous estimates of $1.11 per share.

Only 11 top funds in our database reported a stake in Kirkland’s, Inc. (NASDAQ:KIRK) as of the end of September, down from 15 as of the end of the second quarter. Their combined holdings amounted to 12.5% of the company’s common stock. Brett Hendrickson further reduced his investment in the company during the third quarter, leaving his fund, Nokomis Capital, with roughly 700,000 shares valued at $15 million. Clifford Fox also reduced his exposure, cutting his stake by 5% to 475,369 shares by the end of September.

Stage Stores Inc (NYSE:SSI) is another victim of a poor earnings report. Shares have tanked by as much as 25% today after the department store’s latest financial figures missed analysts’ estimates. Revenue came in at $351 million, below the consensus of $361 million, while its earnings loss widened to $0.29 per share, worse than Wall Street’s expectations of a loss of $0.19 per share. Stage Stores’ shares are down by 66% so far this year and have been in a clear downtrend since April 2013.

Chuck Royce is still bullish on Stage Stores Inc (NYSE:SSI), having boosted his stake by 76% during the third quarter. In its latest 13F filing, Royce & Associates reported ownership of 237,100 shares valued at $2.33 million. Steven Cohen is also keeping tabs on the stock, having initiated a position during the quarter of 210,100 shares worth $2.06 million. In general, hedge funds are not crazy about Stage Stores, with only 12 funds invested in the stock at the end of the third quarter, together holding just 2.8% of its outstanding shares.

With the retail sector set for a gloomy holiday shopping season this year, shares of Best Buy Co Inc (NYSE:BBY) have also taken a hit today after the company reported weak third quarter sales. The stock fell by as much as 8.5% before regaining some of the losses, but the weak outlook for the fourth quarter is going to keep investors on their toes. The company said it expects a low single-digit drop in sales during the holiday season. For the third quarter, Best Buy announced revenue of $8.82 billion, down by 2.4% year-over-year, and earnings of $0.41 per share, versus expectations of $8.84 billion in revenue and earnings of $0.35 per share.

Hedge funds started to distance themselves from Best Buy Co Inc (NYSE:BBY) during the third quarter, with the number of funds reporting a long position in the stock dropping to 28, from 34 at the start of the quarter. David Harding, the manager of Winton Capital Management, is still optimistic about the prospects of the company, further increasing his stake during the quarter to 4.14 million shares worth $153 million. Cliff Asness seems to have changed his mind about Best Buy, reducing his stake during the quarter by 8% to 6.39 million shares.

The latest correction in oil prices has put pressure on energy stocks, with Chesapeake Energy Corporation (NYSE:CHK) down by more than 8% today. Crude oil entered a downtrend in the beginning of November, falling for eight days in a row before reaching support around the $40 level. The U.S. Energy Information Administration reported an increase in crude oil supply yesterday, putting more pressure on oil and energy stocks. Players in the energy market are already looking forward to the next OPEC meeting on December 4, searching for signs of a change in their strategy to maintain market share by keeping production at high levels.

At the end of September, Chesapeake Energy Corporation (NYSE:CHK) could be found in the portfolios of 34 top funds that we track, which held roughly 25% of its outstanding stock. Billionaire activist Carl Icahn is keeping tabs on the energy company, having reiterated his stake in the latest round of 13F filings. Icahn Capital LP holds a little over 73 million shares valued at $535 million. On the other hand, Mason Hawkins’ Southeastern Asset Management continued to dump the stock, reducing its holding to 57.9 million shares by the end of the third quarter.

Disclosure: None