Volatility continues to rear its ugly head today as all three major indexes opened sharply lower. Among the stocks buzzing this morning are Yahoo! Inc. (NASDAQ:YHOO), Apple Inc. (NASDAQ:AAPL), Yum! Brands, Inc. (NYSE:YUM), and General Motors Company (NYSE:GM). Let’s take a closer look at the news events around each stock.
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. Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 48.6% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
Yahoo! Inc. (NASDAQ:YHOO) shares are in the red this morning after the activist fund Jeffrey Smith‘s Starboard Value wrote a caustic letter to Yahoo’s board, noting that the company’s management and board have failed to create shareholder value.
“The past year has been an extremely frustrating one for shareholders of Yahoo! Inc… Despite over three years of effort and billions spent on acquisitions, the management team that was hired to turn around the Core Business has failed to produce acceptable results, in turn, causing massive declines in profitability and cash flow. It appears that investors have lost all confidence in management and the Board. As of Tuesday’s close, the value of the “Yahoo Stub” (defined as Yahoo’s market value less the value of its shares in Alibaba) has collapsed and is currently trading near zero. The bulk of Yahoo’s current market value almost entirely derives from an extraordinary investment Yahoo made over ten years ago in Alibaba, and the good fortune that Alibaba’s management team has executed well such that this investment today is worth over $30 billion. This compares to Yahoo’s current market capitalization of approximately $30.5 billion,” Starboard said.
Starboard believes there is significant changes needed in Yahoo! Inc. (NASDAQ:YHOO), related to management, Board composition, and strategy and execution, among others. Of the around 730 elite funds we track, 89 funds amassed 20.10% of the float at the end of September. Starboard Value reported holding 7.10 million shares of Yahoo in its latest 13F filing.
Apple Inc. (NASDAQ:AAPL) shares are hovering around the $100 mark amid reports that the tech giant expects to trim iPhone 6S and 6S Plus production by 30% in the current quarter, which is higher than the 20% decline that some analysts were expecting and adds fuel to bearish speculation that 2016 iPhone sales might decline for the first time ever. Hedge fund sentiment around Apple Inc. (NASDAQ:AAPL) has been stable, with 133 elite funds long the stock at the end of September, down just 11 from the end of June.
On the next page, we examine Yum! Brands Inc, and General Motors Company.
Yum! Brands, Inc. (NYSE:YUM) is trending on the news that its executive chairman, David Novak, will step down in May. Novak has been Yum! Brands, Inc. (NYSE:YUM)’s chairman since 2000 and was the restaurant chain’s CEO until last year. Yum’s board plans to appoint a non-executive chairman to succeed him in May and will announce the identity of the person during the company’s annual shareholders meeting. Dan Loeb’s Third Point was among the 65 funds that amassed 14.6% of Yum! Brands’ float at the end of the third quarter.
A few days after it agreed to make a $500 million investment in ride-sharing app Lyft, General Motors Company (NYSE:GM) announced that its sales in China (along with that of its joint venture partners) rose by 5.2% year-over-year to 3.61 million vehicles in 2015. Given the slow economy, a positive year-over-year comp in China certainly counts as good news. China is one of the largest automotive markets in the world and General Motors Company (NYSE:GM) doing well in the country means the company’s returns to shareholders are safe.