Why These 5 Stocks Are Plummeting Today

The markets have finally managed to catch a break today, as all major stock indexes have registered gains of more than 1.3%. Despite the general rebound, a few stocks are nonetheless falling hard. Among them we can count Engility Holdings, Inc. (NYSE:EGL), Alkermes Plc (NASDAQ:ALKS), Scholastic Corp (NASDAQ:SCHL), Union Pacific Corporation (NYSE:UNP) and Deutsche Bank AG (USA) (NYSE:DB). Let’s take a look into the events driving these declines, as well as into how the funds in our database feel about the companies in question.

While there are many metrics that investors can assess in the investment process, hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details here).

Back to the stocks that interest us, let’s start with Engility Holdings, Inc. (NYSE:EGL), a small-cap that has lost more than 42% since the market opened. Before the bell, the company reaffirmed its guidance for fiscal year 2015 and updated its forecast for fiscal year 2016. While the figures for 2015 satisfied investors, the outlook for 2016 was grim. Management guided for 2016 revenue in the $2.0 billion to $2.15 billion range, versus the Street’s consensus of $2.26 billion. EBITDA is expected to come in between $180 million and $190 million.

Before the updated guidance, hedge funds in our database seemed quite bullish on Engility Holdings, Inc. (NYSE:EGL). For the latest reported quarter (the third quarter of 2015), the number of funds among those we track which were long the stock rose by 33% to 12. One of the newcomers was David Brown’s Hawk Ridge Management, which acquired 273,073 shares of the company (or about 0.75% of the outstanding shares) during the period.

Alkermes Plc (NASDAQ:ALKS) is also down about 42% in Thursday trading, after the company reported that its depression drug, ALKS 5461, one of its most promising products in development, failed to meet endpoints in two late-stage trials. Further results are expected in late-March.

Opposite to the case above, the funds that we track were losing interest in Alkermes Plc (NASDAQ:ALKS) during the third quarter. The number of hedge funds that disclosed long positions in the company fell by 12% to 22. However, it looks like Neil Woodford’s Woodford Investment Management was quite bullish on the biopharmaceutical firm, as it started a stake comprising more than 5.2 million shares. The position accounted for almost 3.5% of the company’s total shares and made the fund the largest investor of the stock in our database.

On the next two pages, we will look into the events driving the declines in Scholastic Corp (NASDAQ:SCHL), Union Pacific Corporation (NYSE:UNP) and Deutsche Bank AG (USA) (NYSE:DB).

Scholastic Corp (NASDAQ:SCHL) is trading down by 9.6% in afternoon trading, after terminating its modified Dutch Auction tender offer, in which the company was to purchase up to $200 million of common stock. The offer was originally set to expire on January 26; however, as a result of the termination, the company will purchase no shares in the offer. Moreover, every share that was previously tendered and not withdrawn will be returned to tendering holders.

Hedge funds seemed quite confident in Scholastic Corp (NASDAQ:SCHL) during the third quarter, as the small-cap publisher and distributor of children’s books saw hedge fund interest surge by more than 21% among the funds that we track. As of September 30, 17 funds were long the stock, and owned more than 10% of the company’s shares. Chuck Royce’s mutual fund, Royce & Associates, held the largest position among those funds, comprising 1.95 million shares, or 5.7% of the company.

Next up is Union Pacific Corporation (NYSE:UNP), down by 3.5% in the afternoon hours after the company announced its fourth quarter financial results. Before the market opened, the railroad operator reported earnings of $1.31 per share on revenue of $5.21 billion, missing the Street’s consensus of $1.42 in earnings per share and $5.54 billion in revenue.

However, it seems like many hedge funds saw the weakness coming. Over the third quarter of 2015, the number of hedge funds in our database long Union Pacific Corporation (NYSE:UNP) fell to 55 from 64. Nonetheless, First Eagle Investment Management, a mutual fund of which Jean-Marie Eveillard is senior advisor, started a new position in the company over the period. Its 1.52 million shares make it the largest investor among the more than 730 funds that we track.

Finally, there’s Deutsche Bank AG (USA) (NYSE:DB), which is down by almost 3.5% after warning investors that it will report a net loss of approximately €6.7 billion ($7.26 billion) for 2015, mainly on account of large legal and restructuring costs in a time of volatile market conditions.

Hedge funds in our database do not seem to be big fans of Deutsche Bank AG (USA) (NYSE:DB). Over the third quarter, the number of hedge funds long the stock fell by 33% to eight. However, Crispin Odey’s Odey Asset Management Group seems quite bullish; over the period, the fund boosted its stake by 49% to 2.57 million shares, worth almost $70 million.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned in this article.