Contrarian Ideas: 7 Losing Stocks Being Sold by Hedge Funds

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(By Alexander Crawford. Institutional data sourced from Fidelity, price data sourced from Yahoo! Finance.)

Do you like to invest with or against the crowd? Contrarian investors look for opportunities in which they believe the market’s sentiment on a company is too extreme. Stocks exposed to too much negativity often see a price correction to the upside, they argue, so heavily beleaguered stocks may be opportunities to buy.

The only trick is determining when negative sentiment becomes too extreme, which can obviously be a difficult thing for investors to master.
 

Contrarian Trading

For ideas on spotting these contrarian opportunities, we ran a screen for stocks on recent losing streaks, comparing their performance to that of the S&P 500 and measuring the difference as alpha.

We looked at the performance of stocks over the last month, and found those with the lowest ratios of the longest winning streak (in days) to the longest losing streak, indicating a persistence of negative alpha over the last month.

To add weight to this bad performance, we also screened for stocks with net institutional selling over the current quarter.

Do you think these stocks deserve such negative attention? Or are they contrarian opportunities to buy in?

Use this list as a starting point for your own analysis.

Analyze These Ideas (Tools Will Open In A New Window)

1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned

List sorted alphabetically.

1. American DG Energy, Inc. (ADGE): Distributes, owns, and operates on-site energy systems that produce electricity, hot water, heat, and cooling. Net institutional sales in the current quarter at 897.7K shares, which represents about 4.62% of the company's float of 19.43M shares. The stock's average daily alpha vs. the S&P500 index stands at -1.62% (measured close to close, over the last month). During this period, the longest losing streak lasted 8 days (i.e. the stock's daily returns underperformed the S&P 500 for 8 consecutive days). The longest winning streak lasted 3 days (i.e. a win streak / losing streak ratio of 0.38).

2. American Lorain Corporation (ALN): Develops, manufactures, and sells various food products in China and internationally. Net institutional sales in the current quarter at 999.6K shares, which represents about 9.37% of the company's float of 10.67M shares. The stock's average daily alpha vs. the S&P500 index stands at -1.01% (measured close to close, over the last month). During this period, the longest losing streak lasted 6 days (i.e. the stock's daily returns underperformed the S&P 500 for 6 consecutive days). The longest winning streak lasted 3 days (i.e. a win streak / losing streak ratio of 0.5).

3. ClearOne Communications Inc. (CLRO): Operates as a communications solutions company that develops and sells audio conferencing, collaboration, streaming media, and connectivity systems and other related products for audio, video, and Web applications. Net institutional sales in the current quarter at 274.8K shares, which represents about 4.42% of the company's float of 6.22M shares. The stock's average daily alpha vs. the S&P500 index stands at -1.14% (measured close to close, over the last month). During this period, the longest losing streak lasted 10 days (i.e. the stock's daily returns underperformed the S&P 500 for 10 consecutive days). The longest winning streak lasted 3 days (i.e. a win streak / losing streak ratio of 0.3).

4. FBR & Co (FBRC): Provides investment banking, institutional brokerage, and asset management services primarily in the United States. Net institutional sales in the current quarter at 1.8M shares, which represents about 3.65% of the company's float of 49.37M shares. The stock's average daily alpha vs. the S&P500 index stands at -1.28% (measured close to close, over the last month). During this period, the longest losing streak lasted 7 days (i.e. the stock's daily returns underperformed the S&P 500 for 7 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.29).

5. Meru Networks, Inc. (MERU): Engages in the development and marketing of a virtualized wireless LAN solution. Net institutional sales in the current quarter at 310.7K shares, which represents about 4.92% of the company's float of 6.32M shares. The stock's average daily alpha vs. the S&P500 index stands at -3.01% (measured close to close, over the last month). During this period, the longest losing streak lasted 7 days (i.e. the stock's daily returns underperformed the S&P 500 for 7 consecutive days). The longest winning streak lasted 1 day (i.e. a win streak / losing streak ratio of 0.14).

6. China Nuokang Bio-Pharmaceutical Inc. (NKBP): Focuses on the research, development, manufacture, marketing, and sale of hospital-based medical products in China. Net institutional sales in the current quarter at 387.1K shares, which represents about 7.56% of the company's float of 5.12M shares. The stock's average daily alpha vs. the S&P500 index stands at -1.42% (measured close to close, over the last month). During this period, the longest losing streak lasted 4 days (i.e. the stock's daily returns underperformed the S&P 500 for 4 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.5).

7. Smith Micro Software Inc. (SMSI): Develops and markets wireless communications software products and services. Net institutional sales in the current quarter at 3.2M shares, which represents about 10.08% of the company's float of 31.74M shares. The stock's average daily alpha vs. the S&P500 index stands at -1.23% (measured close to close, over the last month). During this period, the longest losing streak lasted 5 days (i.e. the stock's daily returns underperformed the S&P 500 for 5 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.4). 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets


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