It’s Tuesday and shareholders of Depomed Inc (NASDAQ:DEPO), Allegheny Technologies Incorporated (NYSE:ATI), Cempra Inc (NASDAQ:CEMP), and Hexcel Corporation (NYSE:HXL) could certainly use a helping hand, as the value of their stakes has fallen due to a multitude of bad news. Let’s take a closer look at the downside catalysts causing the drops.
First, a little bit about Insider Monkey, a website that tracks smart money sentiment. In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, we look at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds actually managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points during that time (see the details here).
Depomed Inc (NASDAQ:DEPO) is off by 14% in afternoon trading because Horizon Pharma PLC (NASDAQ:HZNP), the drug company that offered to buy Depomed Inc in an all-share transaction earlier this year, is down by 20% after the New York Times published an article detailing how Horizon’s $1,500-per-month Duexis is just a combination of the generic equivalents of Pepcid and Motrin, which cost no more than $40 and $20-per-month, respectively. The Times article further states that Horizon has increased the price of Duexis by a factor of ten since late 2011 and has done similar things with Vimovo, a similar type of generic combination drug that the company acquired in 2013. Given that New York Times articles can lead to new regulations, investors are selling Horizon Pharma’s stock first and asking questions later. Any decline in Horizon Pharma’s price means a decline in the company’s potential acquisition offer for Depomed, hence its own decline.
Allegheny Technologies Incorporated (NYSE:ATI) is down by 11.25% after the company’s third quarter results missed revenue expectations widely, by $116.79 million. Revenue declined 19% sequentially. CEO Rich Harshman had this to say about the results:
“This was a very challenging quarter due to difficult business conditions, especially in the Flat Rolled Products segment, further weakening in demand from the oil & gas markets, and continued weak demand for forged products from the construction and mining market. Sales to the oil & gas market in the High Performance Materials and Components segment were down 34% compared to the second quarter 2015, and Flat Rolled Products segment sales to the oil & gas market were 60% lower as we completed shipments of a large oil & gas pipeline project early in the third quarter.”
Guidance was weak as well, with management not seeing any significant improvement in the company’s major end markets until 2016. Shares are down by more than 50% year-to-date, although their performance would have been better if commodity prices were not so weak. 17 funds reported stakes worth $377.21 million in the company in the latest round of 13F filings, versus 13 funds with $359.66 million worth of holdings a quarter earlier. Kerr Neilson‘s Platinum Asset Management owns 5.42 million shares.
On the next page, we dig into why Cempra and Hexcel Corporation are down.