After a relatively positive end to last week, the markets are back to tumbling today, with all major U.S stock indexes down by more than 0.5%. Among the stocks driving these declines, we can count Potash Corporation of Saskatchewan (USA) (NYSE:POT), Twitter Inc (NYSE:TWTR), Oncomed Pharmaceuticals Inc (NASDAQ:OMED), Caterpillar Inc. (NYSE:CAT) and Diamond Resorts International Inc (NYSE:DRII). Let’s take a look into the events behind these drops, and into what the funds in our database think about the companies involved.
We determine hedge fund sentiment by analyzing the equity portfolios of some of the best-performing hedge funds and institutional investors. Through extensive research, we have determined that the due diligence that these investors employ, as well as their long-term focus makes them perfect targets to emulate. However, the results of our analysis have also showed that the small-cap picks of these funds can generate much better returns, with the 15 most popular small-cap stocks beating the market by an average of 95 basis points per month (read more details here).
Back to Monday’s movers, we’ve got Potash Corporation of Saskatchewan (USA) (NYSE:POT), down by over 6% in the early afternoon hours. The decline is the result of analysts at JP Morgan downgrading the stock to ‘Neutral’ from ‘Overweight’. Since the start of the year, shares of Potash have lost over 12% of their value as the market weakness continues, leading the company to close some of its mines.
However, it seems like hedge funds in our database are bullish on the company’s long-term prospects. For instance, over the third quarter of 2015, Jim Simons’ Renaissance Technologies boosted its holding of Potash Corporation of Saskatchewan (USA) (NYSE:POT) by 591%. The fund disclosed ownership of 5.12 million shares, worth more than $105 million as of September 30.
Next up is Twitter Inc (NYSE:TWTR), which is trading down about 2.9% and close to its all-time low. The decay was triggered by the news that four executives were leaving the company. According to CEO Jack Dorsey, Alex Roetter, senior vice president of engineering, Brian “Skip” Schipper, vice president of human resources, Katie Stanton, vice president of global media, and Kevin Weil, senior vice president of product, have all chosen to resign from their duties at the social media giant. The departures also prompted a downgrade from Stifel Nicolaus, which demoted the stock to ‘Hold’ from ‘Buy’ today in the wake of the executive upheaval.
It is not only research firms that are becoming less excited about Twitter Inc (NYSE:TWTR). During the third quarter, the number of hedge funds in our database long the stock fell by 42.5% to 27. For instance, Andor Capital Management, the fund founded by Daniel Benton and Christopher James, sold all of its 1.5 million Twitter shares over the period.
On the next page we will take a look at the news driving the declines in Oncomed Pharmaceuticals Inc (NASDAQ:OMED), Caterpillar Inc. (NYSE:CAT), and Diamond Resorts International Inc (NYSE:DRII).
Oncomed Pharmaceuticals Inc (NASDAQ:OMED), a small-cap clinical development-stage biopharmaceutical company is down by more than 42% after issuing a negative update concerning its study of a pancreatic cancer treatment, which is currently undergoing Phase 2 trials.
“The findings communicated by the DSMB [data safety monitoring board] suggest a low likelihood of a statistically significant benefit in overall survival in the tarextumab ALPINE pancreatic cancer trial.” The Chief Executive added that the company’s aim is “to quickly unblind the trial and work with our clinical sites and investigators to verify, analyze, interpret, and fully understand the data, including Notch biomarker subgroup trends, and determine next steps,” said Paul J. Hastings, Chairman and CEO of the company.
Today’s results may come as a surprise for some of the hedge funds that we track, which seemed quite bullish on the stock. Over the third quarter of last year, the number of hedge fund long positions rose by 25%. As of September 30, ten funds in our database declared being long Oncomed Pharmaceuticals Inc (NASDAQ:OMED), with their combined holdings accounting for 8.5% of the company’s total shares.
Caterpillar Inc. (NYSE:CAT) is also falling in Monday trading, down by approximately 4% in the early afternoon. The descent seems to have been prompted by Goldman Sachs’ downgrade of the stock, to ‘Sell’ from ‘Neutral’. The firm declared a $51.00 price target on the stock, which implies 13.5% downside potential from today’s market open. The analyst cited weakness in emerging markets, which could lead to reduced demand in the commodities segment, and excess capacity, among other factors.
However, it seems like hedge funds are quite bullish on Caterpillar Inc. (NYSE:CAT) long-term. By the end of the third quarter, the Bill & Melinda Gates Foundation Trust disclosed ownership of 11.26 million shares of the company, or almost 2% of the total shares.
Finally, there’s Diamond Resorts International Inc (NYSE:DRII), which is trading down more than 10% in Monday’s early afternoon hours, after a New York Times article published Friday questioned its business practices. According to the note, the company uses high-pressure sales strategies, with Jeff Weir, a Diamond timeshare owner and RedWeek journalist, telling the Times that in his experience, Diamond is much more ambitious, aggressive and downright nasty in its sales presentations compared to Marriott International Inc. (NASDAQ:MAR) and Westin.
Diamond Resorts responded to the allegations in a letter, where it assured that it has a “strict set of sales policies and practices aimed at protecting the consumer that are in-line with industry best practices,” adding that there’s a “zero tolerance policy for any member of the sales team who does not follow protocol.”
Before these practices were revealed, it seems like hedge funds in our database liked Diamond Resorts International Inc (NYSE:DRII). During the third quarter, the number of firms in our database long the stock rose by 18.5%, to 32. Their combined holdings accounted for 16.9% of the company’s shares as of September 30.
Disclosure: Javier Hasse holds no positions in any of the securities mentioned in this article.