The importance of hedge fund sentiment is not only reflected by the long positions that these firms take in high flying companies, but also how quickly are they able to back out from investments turning sour. In order to bring home this point, we have decided to look at five stocks that saw an outflow of smart money capital during the fourth quarter and apparently it was for a good reason. If retail investors carefully follow this bearish sentiment they too could avoid significant losses in their portfolios in the future.
Our research 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).
#5 Lannett Company, Inc. (NYSE:LCI)
– Investors with Long Positions (as of December 31): 17
– Aggregate Value of Investors’ Holdings (as of December 31): $121.91 Million
The total number of hedge funds from our database long Lannett Company, Inc. (NYSE:LCI) fell by seven during the fourth quarter of 2015 and the stock has slid by 56% since the beginning of 2016. The stock of the manufacturer of generic versions of branded pharmaceuticals embarked on a downtrend towards the end of January, when the company’s preliminary results for the second fiscal quarter turned out to be significantly lower than expectations. Despite posting a top line growth of 10% for the quarter as compared to the same period a year ago, Lannett’s EPS fell by 70%. However, the company has recently posted fiscal third-quarter EPS of $0.75 on revenue of $163.70 million, beating the estimates of $0.63 and $160.49 million, respectively. Chuck Royce‘s Royce & Associates liquidated its entire Lannett Company, Inc. (NYSE:LCI) holding, which constituted some 346,400 shares, during the fourth quarter.
#4 Vivint Solar Inc (NYSE:VSLR)
– Investors with Long Positions (as of December 31): 10
– Aggregate Value of Investors’ Holdings (as of December 31): $112.50 Million
The total number of funds bullish on Viving Solar slid by four during the fourth quarter and since the beginning of 2016, the shares of the $317 million provider of distributed solar energy have cratered by about 74%. Vivint Solar Inc (NYSE:VSLR)’s disappointing fourth quarter earnings, which revealed a cost per watt of $3.12, significantly higher than its competitor SolarCity, termination of the merger agreement with SunEdison, who later filed for bankruptcy, have all contributed to Vivint Solar’s drop. After initiating a position in Vivint Solar Inc (NYSE:VSLR) with about 115,800 shares in the third quarter, Matthew Halbower‘s Pentwater Capital Management sold the entire stake heading into 2016.
#3 Celldex Therapeutics, Inc. (NASDAQ:CLDX)
– Investors with Long Positions (as of December 31): 9
– Aggregate Value of Investors’ Holdings (as of December 31): $37.62 Million
The popularity of the $426 million biopharmaceutical company dropped significantly among smart money investors during the fourth quarter, as the total number of funds holding shares of the company fell by five. The stock is down by 77% year-to-date. Just last month the company was subjected to a row of downgrades from Guggenheim, Leerink Partners, Wedbush and Jeffries. The fate of the company is closely tied to its brain-tumor vaccine Rintega, the final study of which was stopped owing to disappointing results. Although the company has a promising pipeline with other non-vaccine medicines, but investors don’t seem upbeat about their prospects for now. Israel Englander‘s Millennium Management acted prudently when it slashed its Celldex Therapeutics, Inc. (NASDAQ:CLDX) holding by 60% to about 309,400 shares during the last three months of 2015.
#2 PTC Therapeutics, Inc. (NASDAQ:PTCT)
– Investors with Long Positions (as of December 31): 14
– Aggregate Value of Investors’ Holdings (as of December 31): $137.5 Million
Before the almost 80% drop in PTC Therapeutics, Inc. (NASDAQ:PTCT)’s stock price since the beginning of the year, hedgies had started to offload the company from their portfolios as the total number of funds long PTC fell by 50% in the last three months of 2015. Cliff Asness‘ AQR Capital Managedment disposed of its entire stake of 557,600 shares of PTC Therapeutics during the quarter. The $195 million healthcare company that operates in areas of rare disorders, oncology and infectious diseases received a Refuse to File letter regarding its New Drug Application (NDA) for Translarna from FDA in late February. The drug was aiming to provide a cure for nonsense mutation Duchenne muscular dystrophy.
#1 Sunedison Inc (OTCMKTS:SUNEQ)
– Investors with Long Positions (as of December 31): 50
– Aggregate Value of Investors’ Holdings (as of December 31): $512.32 Million
Net 23 funds dumped their stakes in Sunedison Inc (OTCMKTS:SUNEQ) during the fourth quarter. The stock continued its downward slide that started in July last year and has tumbled by 96% since the beginning year. The company has filed for bankruptcy following taking on massive debt to fuel its growth, which stunted the company’s bottom line growth. The low winning bids like that for the Andhra project in India were another area where the company’s management lost focus. Phillip Hempleman‘s Ardsley Partners sold its entire Sunedison Inc (NYSE:SUNE) stake consisting of 1.43 million shares during the October-December period.