Insider Monkey keeps a keen eye on the activity of the top hedge funds in the world, as our research has shown that hedge funds’ long positions can deliver market-beating returns. Likewise, we also try to steer clear of stocks which have minimal hedge fund support, or rapidly declining support.
In this article, we’ll look at five stocks that have a double whammy of negative sentiment surrounding them; hedge funds are bearish on them, owning miniscule amounts of their float, while these stocks also have sky-high short interest. This combination could bode extremely poorly for these stocks in the coming quarters, so let’s take a look at five stocks that may best be avoided in the near-term.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Merrimack Pharmaceuticals Inc (NASDAQ:MACK)
Of the 742 hedge funds tracked by Insider Monkey which filed 13Fs for the September 30 SEC reporting period, just 11 funds were long Merrimack Pharmaceuticals Inc (NASDAQ:MACK) as of the end of the third quarter, and those funds owned just 2% of the company’s outstanding shares. The stock is showing increased signs of short selling as well. As of November 15, 40.46 million shares of Merrimack are being shorted, or 33.2% of the float, though that total was down by 1.37 million shares during the first-half of November. Earlier this month, Reuters reported that Merrimack was in talks with several investment firms and banks, including Credit Suisse and Bank of America, for a strategic review regarding the sale of some of its assets and/or a licensing deal. At the end of the third quarter, Mitchell Blutt’s Consonance Capital Management owns 5.95 million shares of Merrimack Pharmaceuticals Inc (NASDAQ:MACK).
ZIOPHARM Oncology Inc. (NASDAQ:ZIOP)
Just 7 hedge funds in our database are bullish on ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) as of the end of the third quarter, owning just 3.60% of its float. The broader market is also quite bearish on the Boston-based pharmaceutical company, as 40.88 million shares of the company are short, which accounts for 35.40% of the total float. In the third quarter, ZIOPHARM Oncology’s revenue totaled $1.6 million, while it recorded an $0.11 loss per share, in-line with estimates. Marc Lisker, Glenn Fuhrman and John Phelan’s MSDC Management has 3.4 million shares of ZIOPHARM among its holdings as of the end of the third quarter.
We’ll check out three more stocks that hedge funds and many others hate on the next page.
VirnetX Holding Corporation (NYSEMKT:VHC)
At the end of the third quarter, just 4 hedge funds that we track were long VirnetX Holding Corporation (NYSEMKT:VHC), down from 5 funds a quarter earlier. Those 4 funds held shares of the company worth a mere $714,000 on September 30, amounting to a miniscule 0.40% of the float. In contrast, 14.63 million shares of VirnetX Holding Corporation (NYSEMKT:VHC), or 30.1% of its float, are being shorted as of November 15. The stock continues to defy the shorts however, and is up by over 26% year-to-date. The company said in October that a Texas court awarded it $302.4 million after winning its case against Apple Inc. (NASDAQ:AAPL) for infringing on four of its patents. D E Shaw is a notable stakeholder of VirnetX, owning 102,925 of its shares.
Stage Stores Inc (NYSE:SSI)
Stage Stores Inc (NYSE:SSI) is another stock with languishing hedge fund sentiment, as a total of just 5 funds in our database were bullish on the Texas-based department store operator at the end of September, though this was up from only 3 funds a quarter earlier. Nonetheless, those 5 funds owned just 0.20% of the company’s float. Meanwhile, 26% of the company’s float is being short as of November 15, equaling 6.53 million Stage Stores Inc (NYSE:SSI) shares. The stock has lost over 50% year-to-date. Last week, investment firm Northcoast Research lowered its rating for Stage Stores (NYSE:SSI) to ‘Sell’ from ‘Neutral’. As of the end of the third quarter, Mark Coe’s Coe Capital Management owns 242,025 shares of the company.
3D Systems Corporation (NYSE:DDD)
As of the end of the third quarter, 12 hedge funds tracked by Insider Monkey were long 3D Systems Corporation (NYSE:DDD), compared to 11 funds a quarter earlier. These funds owned about 2.8% of the company’s float, compared to 25.7% of the company’s stock being shorted. In the third quarter, 3D Systems earned $0.14 a share on $156.36 million revenue, above the forecasts of $0.09 per share in earnings, but missing the expected $160.16 million in revenue. The stock has gained over 73% year-to-date. Jim Simons’ Renaissance Technologies had amassed 1.19 million shares of 3D Systems Corporation (NYSE:DDD) as of the end of the third quarter.