Artko Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -11.4% for the quarter, underperforming its benchmark, the S&P 500 Index which returned 20.5% in the same quarter. You should check out Artko Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.
In the said letter, Artko Capital highlighted a few stocks and Recro Pharma Inc. (NASDAQ:REPH) is one of them. Recro Pharma Inc. (NASDAQ:REPH) is a pharma company. Year-to-date, Recro Pharma Inc. (NASDAQ:REPH) stock lost 76.7% and on August 6th it had a closing price of $4.11. Here is what Artko Capital said:
“Recro Pharma (REPH) – Recro is our other Core Portfolio significant underperformer, down over 70% from its year end 2019 peak, when we took close to two thirds of our gains off the table both on the Recro Pharma position and Baudax Bio spin-off. Nevertheless, the position remained at 10% size at the beginning of the year and its decline to approximately 30% below our cost average certainly hurt. So what caused the standard microcap roundtrip? This was essentially the case of the management not managing the market expectations. In 2019 the company grew the topline 28.5% to almost a $100mm and operating income to $32.3mm on the back of a significant competitor, Mylan, being out of the market for most of the year where Recro was able to pick up most of the market share for one of its key product lines. As 2020 began the company was caught flatfooted as Mylan came back to the market with 50% market share and two of the company’s customers discontinuing their product lines with a $4mm negative revenue impact in 2020 and $7-8mm in 2021. With the market expecting a close to $60mm EBITDA number in 2020, a subsequent guide down to a sub $30mm, and $80mm to $85mm in revenues, in February and May destroyed the management’s credibility over their ability to forecast their business and the stock is likely to be in a timeout for most of 2020.
With the stock down to low $4.00/per share range and a sub $100mm market capitalization and a now, somewhat dangerous, $90mm in debt, this now 6.0% Core Portfolio position, is likely to become a source of cash in the portfolio. We no longer expect a $20+ sale and are concerned that there may be more product revenue decline announcements in the future. However, we believe the company’s likely longer term $80mm revenue and a $10mm/$35mm EBIT/EBITDA run rates along with significant manufacturing capacity during a secular move to bring onshore drug manufacturing back to United States is worth more than the current $4.15 per share price and while this position is on its way out we will be patient with our exit strategy.”
In Q1 2020, the number of bullish hedge fund positions on Recro Pharma Inc. (NASDAQ:REPH) stock decreased by about 35% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Recro Pharma’s downside potential. Our calculations showed that Recro Pharma Inc. (NASDAQ:REPH) isn’t ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.