The healthcare sector is down by about 3.75% so far this year, after enjoying a lengthy bull run into the middle of 2015. While the current breather could serve as a good entry point for some hedge funds and investors, there are others that should best be approached with caution. We decided to group these stocks according to the loss of confidence in them during the first quarter from the smart money tracked by Insider Monkey. Read on to see the five healthcare stocks that saw the largest declines in hedge fund ownership during the quarter.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
5. Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP)
– Investors with Long Positions (as of March 31): 15
– Aggregate Value of Investors’ Holdings (as of March 31): $23.61 Million
During the March quarter, Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP)’s stock price slumped by nearly 37%, while the total number of hedge funds holding the company in their portfolios slid by 32% to just 15. The company suffered from the volatile swings faced by the entire biotechnology sector as well as due to its reliance on just one drug, Amitiza, a chronic constipation therapy. However, Sucampo’s low forward earnings multiple of 9 and its recent upgrade by WallachBeth to ‘Buy’ from ‘Hold’ suggests there is some upside potential yet to be unlocked in the stock. WallachBeth has a price target of $16 on the stock, which suggests upside of about 28%. Jim Simons‘ Renaissance Technologies is certainly a believer of this thesis, as it raised its Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP) holding by 49% to 825,700 shares during the first quarter.
4. Zeltiq Aesthetics Inc (NASDAQ:ZLTQ)
– Investors with Long Positions (as of March 31): 19
– Aggregate Value of Investors’ Holdings (as of March 31): $371.81 Million
While the number of hedgies in our system bullish on Zeltiq Aesthetics Inc (NASDAQ:ZLTQ) dropped by 41% during the March quarter, the aggregate value of their holdings only dropped by about 6%. Given that the stock fell by 5% during the period, aggregate share ownership was nearly flat, despite the large decline in shareholders. Shares have made up most of those first quarter losses despite the company’s earnings report on May 10 sending shares down sharply. Zeltiq’s loss of $0.25 per share during the first quarter was in-line with estimates while its revenue of $64.5 million came in $2.7 million ahead of expectations and represented a 25.1% increase on a year-over-year basis. Steve Cohen‘s Point72 Asset Management cut its Zeltiq Aesthetics Inc (NASDAQ:ZLTQ) holding by 27% to almost 1.7 million shares during the March quarter.
There are three more healthcare stocks that hedge funds didn’t much care for in the first quarter; we’ll reveal them on the next page.