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Why These 5 Stocks Are Sinking Today

The markets are sailing high today, following the Dow Jones closing above 18,000 on Monday for the first time since July 2015. According to the American Association of Individual Investors, stock allocation surged by 64% last month after investors converted cash into equities, which is the primary reason behind the recent market rally. Meanwhile, a massive workers strike in Kuwait has greatly curtailed oil production, temporarily stabilizing crude prices on the open market. However, there are some important stocks which are sinking today despite the fair trading seas. Among those stocks are Brinker International, Inc. (NYSE:EAT), Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP), Capstone Turbine Corporation (NASDAQ:CPST), Applied Optoelectronics Inc (NASDAQ:AAOI), and ADTRAN, Inc. (NASDAQ:ADTN), which we’ll look at in this article. We’ll also take a look at how the hedge funds that we track have been trading these stocks recently.

Our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (see the details here).

Brinker International Stung by Declining Sales

Shares of Brinker International, Inc. (NYSE:EAT) have lost more than 6% this morning after the company reported its latest quarterly earnings. The dining company’s profit for the most recent quarter tumbled by 12% with EPS of $1.00, while its revenue of $824.6 million missed the consensus estimate of $844.09 million. Sales at Brinker International’s Chili’s flagship restaurants decreased by 4.1% last quarter. In a statement, Wyman Roberts, CEO of Brinker International, said that the company is disappointed in its sales performance. Following the earnings report, Zacks Investment Research downgraded its rating for Brinker International to ‘Sell’ from ‘Hold’, citing the decline in sales. The firm said that increasing food costs would further dent the company’s performance in the near future.

Out of the 785 or so hedge funds tracked by us, 17 of them held positions in Brinker International, Inc. (NYSE:EAT) at the end of the fourth quarter. Jim Simons‘ Renaissance Technologies was one of the notable stakeholders of Brinker International with ownership of 290,800 shares of the company on December 31.

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Drug Failure Drags Down Sucampo

Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP)’s stock has declined by more than 5% this morning after the company announced that it was pulling the plug on the development of cobiprostone, a drug for the treatment of proton pump inhibitor-refractory non-erosive reflux disease (NERD), because the drug did not meet the primary endpoints in its Phase 2a trial. However, the statement said that the company plans to continue the development of cobiprostone study for the prevention of oral mucositis disorder, which is currently in a Phase 2a trial of its own.

A total of 22 hedge funds out of those tracked by Insider Monkey held stakes in Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP) at the end of 2015, with a total value of approximately $42.1 million. Joel Greenblatt’s Gotham Asset Management had one of the biggest stakes in the company, of 583,716 shares.

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We examine the ill tidings that are sinking three other stocks today on the next page.

Common Stock Offering Crashes Capstone

Capstone Turbine Corporation (NASDAQ:CPST)’s stock has plummeted by more than 24% after the company announced an offering of common stock and warrants. The company announced an underwriting deal to sell 2.7 million shares of its common stock through a public offering. The company will also offer pre-funded Series B warrants purchasing a maximum of 5.515 million shares. The offering also includes Series A warrants to acquire 4.107 million shares. The microturbine energy company intends to use the funds generated from the offering for general capital requirements and corporate purposes. Shares of Capstone are still up by 33% year-to-date. Overall, three hedge funds in our system held stakes in Capstone Turbine Corporation (NASDAQ:CPST) at the end of the fourth quarter.

Preliminary Q1 Results Weigh Down Applied Optoelectronics

Applied Optoelectronics Inc (NASDAQ:AAOI)’s stock has declined by approximately 25% after the company announced its preliminary results for the first quarter of 2016. The company expects non-GAAP EPS of $0.04-to-$0.06, which is well below the consensus of $0.23 and the company’s own initial guidance for the quarter of $0.21-to-$0.28. Sales are expected to fall between $50.00 million and $50.50 million, which would represent about 65% growth year-over-year and fall within the company’s original guidance of $50.00 million-to-$54.00 million. In a statement, Dr. Thompson Lin, CEO of Applied Optoelectronics Inc (NASDAQ:AAOI), said that the performance was mainly affected due to higher-than-expected cost of goods sold and research and development costs.

A total of 14 hedge funds in our database held positions in Applied Optoelectronics Inc (NASDAQ:AAOI) worth about $72.8 million at the end of 2015. Bernard Selz’s Selz Capital was one of the notable shareholders of the company, with ownership of 305,000 shares.

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Ratings Downgrade Sours Investors on ADTRAN

Shares of ADTRAN, Inc. (NASDAQ:ADTN) have tumbled by 8% today following Goldman Sachs downgrading the communications equipment company to ‘Sell’ from ‘Neutral’ in a report yesterday. The investment bank set a price target of $17 on the stock, down from $18 previously. The company recently announced that its Board of Directors declared a cash dividend of $0.09 per common share, which is to be paid to shareholders of record on April 28. The company also reported its first quarter results last week, which amounted to a 0.4% year-over-year revenue decline to $142.2 million, which nonetheless beat estimates of $141 million.

14 funds in our system held long positions in ADTRAN, Inc. (NASDAQ:ADTN) at the end of December worth $94.3 million. Ken Griffin‘s Citadel Investment Group held one of the largest positions in the company, which totaled 817,584 shares.

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Disclosure: None