Why Are These Five Stocks Tumbling on Tuesday?

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).

Shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) were trading down by more than 8.4% on Tuesday afternoon on news of a new SEC investigation into the company – which management has known about for more than a couple of months. On Monday, the company announced that it was rescheduling the release of its fourth quarter financial report and withdrawing its previously issued 2016 guidance – on the same day as CEO J. Michael Pearson returned to the company.

While Andrew Left of Citron Research is pleased with the stream of negative developments surrounding Valeant Pharmaceuticals Intl Inc (NYSE:VRX), other funds, including Bill Ackman‘s Pershing Square, Jeffrey Ubben’s Valueact Capital and 81 other firms in our database are aching. Pershing disclosed ownership of more than 30.71 million shares of the company in early February; Valueact last said it held 14.99 million shares of  Valeant as of December 31.

Next up is Pepco Holdings, Inc. (NYSE:POM), whose stock has inched down by 7% on Tuesday trading after the District of Columbia’s rate-payer advocate said she would not approve of a merger with Exelon Corporation (NYSE:EXC), which had offered $6.8 billion to buy Pepco. The People’s Counsel argued that, under the proposed agreement, there is no way to assure that rates for residential rate-payers won’t see increases through March 2019.

Shares of Pepco Holdings, Inc. (NYSE:POM) have now entered negative territory, having lost more than 6.5% since the beginning of the year. Meanwhile, Dmitry Balyasny‘s Balyasny Asset Management sold all of its 900,300 shares and put options underlying around 500,000 shares during the fourth quarter.

Finally, there’s Marathon Oil Corporation (NYSE:MRO), whose stock has declined 3.7% in the afternoon trading, after the company announced a public offering of 135 million shares of common stock and an additional 20.25 million shares for underwriters on late Monday. The combined value of the offering amounts to $1.3 billion, which will be used to strengthen the company balance sheet and “for general corporate purposes, including funding a portion of its capital program,” the company declared in a statement.

The largest hedge fund investor in Marathon Oil Corporation (NYSE:MRO), among those we track, is William B. Gray’s Orbis Investment Management, which disclosed ownership of 5.68 million shares, worth more than $71.57 million in its 13F filing for the end of the fourth quarter. 

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.