Why These Four Stocks Plunged on Tuesday

With markets in the green on Tuesday, four stocks are making big downward moves on the back of different developments. American International Group Inc (NYSE:AIG) is extending its losses on the back of its financial results, and Textainer Group Holdings Limited (NYSE:TGH), Martin Marietta Materials, Inc. (NYSE:MLM), and Demandware Inc (NYSE:DWRE) are also down on the back of weak third quarter earnings. Let’s take a closer look at the developments that sent these stocks lower today and see if the smart money sentiment agrees with today’s trends.

We assess the hedge fund sentiment towards stocks by analyzing the equity portfolios of over 700 investors that we track as part of our small-cap strategy. Through extensive analysis, we determined that by imitating the most popular small-cap picks among these funds, we can beat the market by double digits each year. Our strategy involves identifying the 15 most popular small-cap ideas of the funds from our database and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by some 53 percentage points (see more details here).

American International Group Inc (NYSE:AIG)‘s stock opened nearly 5% lower and has stayed at the same level throughout the day. The company posted EPS of $0.52, well below the $1.03 expected by analysts (see more details here). CEO Peter Hancock also rebuffed the suggestion by activists Carl Icahn and John Paulson that the company should break up. Today’s drop probably made the stock more attractive to investors, since AIG is one of the best companies to hold for the long-term. Recently, Omega Advisors, a hedge fund managed by notorious value investor Leon Cooperman, reaffirmed American International Group Inc (NYSE:AIG) as one of its top picks and set a 10% growth rate for the company for the next three-to-five years (see article).

Textainer Group Holdings Limited (NYSE:TGH)‘s stock also opened lower and has further extended its losses to over 20% in intraday trading. The company delivered revenues of $135.59 million for the third quarter, down by 6% on the year, and earnings of $0.31 per share, a decline of 64% compared to the same period of last year. Both revenues and earnings also missed analyst estimates of $138.2 million in revenue and $0.66 in EPS. In addition, amid a lower demand for shipping containers, Textainer Group Holdings Limited also lowered its outlook for the next two years and cut its dividend to $0.24 from $0.47. Most investors from our database don’t see any profit-making opportunities in Textainer Group Holdings Limited (NYSE:TGH), as only eight funds held stakes equal to just 0.40% of the company’s outstanding stock at the end of June.

On the next page, we will look at what sparked the declines of the other two stocks, Martin Marietta Materials, Inc. (NYSE:MLM) and Demandware Inc (NYSE:DWRE).

Martin Marietta Materials, Inc. (NYSE:MLM)‘s stock has inched down by around 6% so far today after the company reported sales of around $1.01 billion and adjusted EPS of $2.05, which were higher in year-on-year terms, but missed the estimates of $1.05 billion in revenue and $2.15 in EPS. The stock is still 32% in the green year-to-date and trading at 19.6-times forward earnings, it seems overvalued (its 12-month forward PEG ratio stands at around 2.17). However, during the second quarter, the number of funds from our database that were bullish on Martin Marietta Materials, Inc. (NYSE:MLM) went up by five to 45, while the aggregate value of their holdings stood at 20% of its outstanding stock, so elite investors do like what they see in the company.

Demandware Inc (NYSE:DWRE)‘s shares have lost 13% in intraday trading on the back of a lower subscription guidance. The provider of cloud-based commerce solutions posted better-than-expected results, with revenue of $57.58 million, up by 49% on the year and adjusted EPS of $0.07, versus $0.03 a year earlier, and a loss of $0.09 expected by analysts. Demandware still increased its full-year total revenue guidance to a range of $233 million-to-$235 million, but its subscription revenue outlook was lowered to between $199 million-and-$201 million from the previous $200 million-to-$205 million range. On the back of the results, several analysts lowered their price targets, but maintained bullish ratings on Demandware Inc (NYSE:DWRE), including Barclays, which set a $70 price target on Demandware along with an ‘Overweight’ rating and Mizuho, which cut its price target to $63 from $75, but has a ‘Buy’ rating on the stock. A total of 15 funds from our database held around 4% of Demandware’s outstanding stock at the end of June.

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