The market spiked Tuesday, with all major U.S. indexes trading up by more than 1.5%. However, several stocks were registering steep declines, with top losers including Sunedison Inc (NYSE:SUNE), Ocwen Financial Corp (NYSE:OCN), Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Pepco Holdings, Inc. (NYSE:POM) and Marathon Oil Corporation (NYSE:MRO). Let’s take a look into the events behind the declines of these stocks, as well as see what the hedge funds in our database think about these companies.
The smart money sentiment is an important metric that can be used to assess the long-term profitability of a stock. While there are thousands of stocks trading on the market, taking a look at what hedge funds think about certain companies can narrow down the search significantly. At Insider Monkey, we track more than 700 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details here).
Back to the stocks that interest us, let’s start with Sunedison Inc (NYSE:SUNE), which is trading down by more than 20% on Tuesday. Apparently, three developments are driving the decline in the stock price. The company disclosed that it was undergoing an internal inquiry that began in late 2015, “based on allegations made by former executives,” in relation to the accuracy of its financial position. This led the company to say that its financial results for 2015 will be filed 15 calendar days after their due date. In addition to the news reported by the company, Sunedison Inc (NYSE:SUNE)’s stock was downgraded by Oppenheimer. Earlier today, analyst Colin Rusch has demoted the stock to ‘Perform’ from ‘Outperform’ due to the delay in the earnings release and liquidity issues.
While most investors might negatively interpret the decline registered by Sunedison in the last several months, bulls are raging, taking advantage of the depressed stock prices to build up their positions. This is the case of David Einhorn’s Greenlight Capital. The fund declared holding 18.6 million shares as of the end of the fourth quarter of 2015 and in January it disclosed a marked increase in its stake to 27.15 million shares.
Another big decliner on Tuesday is Ocwen Financial Corp (NYSE:OCN), whose stock has slid by 38, extending the losses of 38% registered on Monday, after it had reported a fourth-quarter net loss of $1.79 per share, widely missing estimates of a loss of $0.29 per share. Revenue of $362.46 million, down 26.5% year-over-year, also came in lower than expected. In addition, on Monday, the company disclosed another SEC probe into its operations, which have been subject of many other investigations in the recent past.
One of the investors that is probably not very happy about Ocwen’s performance is Michael Blitzer. His fund, Kingstown Capital Management, disclosed ownership of 12.5 million shares of Ocwen Financial Corp (NYSE:OCN), valued at more than $87 million as of December 31.
On the next page, we will take a look at the events driving the declines in Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Pepco Holdings, Inc. (NYSE:POM) and Marathon Oil Corporation (NYSE:MRO).