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Morning Brief: Popular Hedge Fund Stocks Rocked by North Korea

Shares of Alibaba Group Holding dropped 4.8 percent Monday amid escalating tensions between the U.S. and North Korea.

  • By Stephen Taub

Shares of several of the most popular stocks among hedge funds suffered sharp losses Monday after tensions between North Korea and the U.S. intensified. North Korea has threatened to shoot down American bombers as its foreign minister said comments made by President Donald Trump were a declaration of war, according to The New York Times on Monday. Shares of Facebook, which had at least 173 hedge fund investors at the end of the second quarter according to Goldman Sachs Group, tumbled 4.5 percent to close at $162.87. Amazon.com, the second-most popular hedge fund stock with 158 investors, fell 1.6 percent to close at $939.79. Shares of Microsoft Corp. also dropped 1.6 percent, to $73.26 each. Visa, the seventh-most popular stock declined 2.4 percent to close at $103.02. Shares of Alibaba Group Holding, which is tied as the tenth-most popular hedge fund stock based on Goldman’s research, fell 4.8 percent to close at $169.59.

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Allergan, a favorite among hedge funds, rose 3.4 percent to close at $211.61 after the drug maker announced its board authorized a new $2 billion share repurchase program. The company said it is still committed to increasing its regular, quarterly cash dividend each year. Allergan also pledged to pay down $3.75 billion of debt next year as part of its commitment to maintain investment-grade credit ratings. “These actions reflect the company’s conviction in its business strategy and strong future cash flow position, allowing for periodic return of cash to shareholders through dividends and share buybacks while maintaining investment grade ratings and continuing its debt pay down strategy,” Allergan said in the announcement.

The company also reaffirmed its 2017 financial guidance issued on August 3. “We continue to believe that Allergan stock is substantially undervalued, and the share price today presents a unique investment opportunity for the company,” Brent Saunders, chairman, chief executive officer and president of Allergan, said in the announcement. At the end of the second quarter, at least 84 hedge funds held a position in Allergan, according to Goldman Sachs Group. In addition, 23 of the funds held the stock among their top-10 holdings.

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P2 Capital Partners disclosed in a regulatory filing that it owns 2.25 million shares of BroadSoft, or 7.3 percent of the communication software and service provider. the activist hedge fund said the 13D filing with the Securities and Exchange Commission that it acquired its stake “in order to obtain a significant equity position.” P2 said it has held, or may hold discussions with management, the board of directors and other shareholders, possibly making suggestions for how BroadSoft could maximize value for shareholders. These discussions may concern such matters as the company’s operations, capital structure, governance and strategic transactions. Shares of BroadSoft rose 0.5 percent to close Monday at $50.05.

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Credit Suisse Group trimmed its price target on Conagra Brands to $37 a share from $39 while keeping its neutral rating on the stock. In a note to clients, the investment bank said it raised its sales estimate for the packaged foods giant, but lowered its gross margin to reflect higher trade costs in the first quarter. “Management’s upbeat comments at its September 5 presentation and our latest retail tracking data indicate improving sales trends,” Credit Suisse wrote in its report. “While we find these trends encouraging, the latest results from General Mills and Campbell indicate that vendors need to pay the grocers higher allowances to help them deliver this kind of performance.” At the end of the second quarter, Conagra was the eighth largest long of JANA Partners. King Street Capital Management had a sizable position in put options tied to the company.

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