The markets remained flat on Monday, and their performance will be directly affected by the reports of the financial results of major US banks. In this way Dow Jones and S&P 500 have inched up by 0.25% and 0.05%, respectively, while the NASDAQ has gained 0.17% so far. Gold has been gaining ground on fears of a delay of the interest rate hike in the US and a weaker dollar. However, amid a flat market, three stocks have opened in the red and are most likely to extend their losses throughout the week. In this article we are going not only to take a closer look at the news that sent these stocks lower, but also at the hedge fund sentiment towards them in order to see whether these companies might have a long-term potential and whether you should buy them on the dip.
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 6 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 49% gain) over the last 37 months (see more details here).
With this in mind, let’s take a closer look at the three losers on Monday, starting with SunCoke Energy Inc (NYSE:SXC), whose stock has tanked by over 25% on a volume slightly above average. The company reported its financial results for the third quarter earlier today, which indicated a revenue of $336.9 million, down by an annual 40% and a net loss of $23.5 million, significantly wider compared to a loss of $3.6 million posted a year earlier. The producer of coke has also missed the EPS estimate of $0.02 by delivering a loss of $0.36 per share for the quarter. The net loss includes an impairment charge of $19 million, or $0.30 per share related to its VISA SunCoke joint venture, the company said in a statement. Analysts have not commented on the earnings so far, but last month, FBR & Co. initiated coverage on SunCoke Energy Inc (NYSE:SXC)’s stock with ‘Outperform’ rating and $18.00 price target. According to our data, 35 funds out of over 700 that we track are betting big on SunCoke as they amassed nearly 40% of SunCoke Energy Inc (NYSE:SXC), according to the last round of 13F filings, even though the number of funds declined by two during the second quarter and the aggregate value of their holdings fell to $332.96 million from $401.36 million. Among the top three shareholders of SunCoke is billionaire Israel Englander‘s Millennium Management, which upped its stake by 29% on the quarter to 2.95 million shares. Jim Simons’ Renaissance Technologies also raised its stake by 38% over the quarter to 1.19 million shares, according to its latest 13F.
Let’s take a look at two other stocks that have been losing ground on Monday.
Then there is Sientra Inc (NASDAQ:SIEN), a $110 million medical aesthetics company, whose stock has slid by more than 12% after the company sent a letter to plastic surgeons, in which it suggested that they should stop implanting Sientra devices made by its Brazilian contract manufacturer, Slimed. The decision came after the US Food and Drug Administration had discussed with Sientra Inc (NASDAQ:SIEN) regarding regulatory inquires into products made by Slimed. Last week, the stock lost over 20% on the back of the Brazilian regulator suspending production at Slimed (see article). Hedge funds from our database were also bullish on Sientra Inc (NASDAQ:SIEN), even though the company is not very popular among them. Only six funds reported stakes worth $129.77 million as of the end of June, which represented 34.50% of the company and was higher than $97.27 million held by five funds a quarter earlier. However, with the stock down by over 70% in the last month, it is very likely that the sentiment will change. As a first sign, Samuel Isaly’s Orbimed Advisors has been unloading shares of Sientra Inc (NASDAQ:SIEN) for the last several weeks, last reporting ownership of some 2.07 million shares, as compared to 3.19 million shares reported in its latest 13F. Another healthcare-focused fund that owns shares of Sientra is Jacob Gottlieb’s Visium Asset Management, which disclosed holding 1.48 million shares in its last 13F.
HeartWare International Inc (NASDAQ:HTWR) is another healthcare stock that fell by over 12% on Monday, without any significant news from what it looks like. The stock has been in the red for the past month, losing over 30% since September 14. Last week, Glenn Welling’s Engaged Capital, which initiated a stake and became one of the top 20 shareholders of the company, urged HeartWare International Inc (NASDAQ:HTWR) to terminate its acquisition of Valtech Cardio, Ltd, saying that the deal would dilute the shareholders and drive higher the business risks. However, the company has issued a statement saying that it disagrees with the investor, despite the fact that the market has a similar opinion, as the stock lost over 20% after the Valtech Cardio acquisition was announced. The general outlook on HeartWare International Inc (NASDAQ:HTWR) among the funds that we track is positive as 15 funds from our database amassed over 16% of the company during the second quarter. While the number of funds increased by five during the quarter, the aggregate value of their holdings fell to $201.93 million from $238.50 million. The top shareholder among these investors was Phill Gross and Robert Atchinson‘s Adage Capital Management, which owned 1.83 million shares at the end of June.