3 Stocks Got Crushed Today but Hedge Funds Say One of Them Will Rebound

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Several stocks are begging for today’s trading session to end so they can recuperate over the weekend from the beating they’ve suffered today. Emerge Energy Services (NYSE:EMES), Aratana Therapeutics (NASDAQ:PETX), and Sysorex Global Holdings Corp (NASDAQ:SYRX) are three of the trading session’s biggest losers so far. We’ll dig into the fray and try to uncover whether these stocks can get off the mat or if they’re down for the count.

We’ll start with Aratana Therapeutics (NASDAQ:PETX), a pet therapeutics company that will need a little therapy of its own after getting scratched, bitten, and mauled so far in today’s trading session. Shares are down by just over 30% after the company released product updates for five of its therapeutic candidates, declaring that both AT-004 and AT-005 for the treatment of canine lymphoma appear to be unsuitable for capturing a broad market, though the company will continue to make the treatments available to vets while it works on a second-generation alternative. Following that announcement, Craig-Hallum downgraded the stock to ‘Hold’ from ‘Buy’.

Sio Capital

Aratana Therapeutics (NASDAQ:PETX) was a stock which we highlighted two years ago as a promising new stock pick of Michael Castor, with greater than 150% upside potential by 2016. However, two years later, the stock has been unable to meet Castor’s bullish target, and is actually trading down by about 20% since that prediction. Castor’s Sio Capital held a 405,000-share position in the stock on June 30, while 12 other firms in our database were also long on the stock, holding 14.80% of its common shares. Kevin Kotler’s Broadfin Capital, one of the top performing funds this year, was the top shareholder of Aratana Therapeutics in our database, so the stock does have some notable champions despite the setback today, and therefore we believe it makes for a good rebound candidate.

A reader might question our decision to focus on the small-cap category, considering that it’s mostly the larger counterparts of these companies that head the portfolios of most hedge funds. The reason for our focus is simple. Our research has shown that in the period between 1999 and 2012 the top small-cap picks of hedge funds outperformed the broader market by nearly one percentage point per month, whereas the top overall picks (mostly large-caps) underperformed by seven basis points per month during the same period. Why pay high fees to own a glut of low-performing stocks when you can invest on your own in hedge funds’ best stock picks? Since its launch in August 2012, Insider Monkey’s small-cap strategy has outperformed the S&P 500 every year, returning 118% since then, over two-times greater returns than the S&P 500 (read the details here).

Sysorex Global Holdings Corp (NASDAQ:SYRX), a provider of IT and analytical services to enterprises is another company whose stock has been kicked today, and then kicked again while it’s down, to the tune of a 35.63% decline in afternoon trading. The plummet comes after the company announced a public offering of common stock to be sold by the company itself. Though the exact amount of shares was not revealed in the company’s press release, it amounts to 5.25 million shares at $1.00 per share, as revealed in a Form 8-K filing with the SEC. The underwriters will also have a 30-day option to purchase up to an additional 787,500 shares. Sysorex declared that it would use the proceeds for general corporate purposes. In an interesting case of six degrees of separation, Craig-Hallum, which downgraded Aratana, will act as a co-manager of the offering.

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Hedge funds that we track aren’t exactly fans of the stock; in fact of the more than 700 elite investment firms that we track, none of them had a long position in the company on June 30, and haven’t for the past three quarters, since Chuck Royce’s Royce & Associates and Peter Keane’s Keane Capital Management held positions in the stock at the end of the third quarter of 2014.

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