Lakewood Capital Management recently released its Q2 2020 Investor Letter, a copy of which you can download here. In the letter, among other things, the fund reported a net profit of 10.7% for Q2 2020. You should check out Lakewood 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, Lakewood Capital highlighted a few stocks and Sorrento Therapeutics Inc. (NASDAQ:SRNE) is one of them. Sorrento Therapeutics Inc. (NASDAQ:SRNE) is a biotechnology company. Year-to-date, Sorrento Therapeutics Inc. (NASDAQ:SRNE) stock gained 245.5% and on August 3rd it had a closing price of $9.77. Here is what Lakewood Capital said:
“We recently initiated a short position in Sorrento Therapeutics, a biotechnology company with a checkered history that is now opportunistically claiming to have the cure for COVID-19. We have followed Sorrento for a while, and after years of shady transactions, shameless promotions and staggering losses, the stock appeared to finally reach the end of the road in early 2020. By March, Sorrento was down to $22 million of cash with $285 million of debt and a few hundred million dollars of market capitalization.
But, in the second quarter, the company’s fortunes suddenly turned. Sorrento announced plans to sell stock to two different entities, Alliance Global Partners and Arnaki Ltd. Alliance Global Partners has a long history of raising money for failed and fraudulent companies, and Arnaki Ltd. is an opaque British Virgin Island company linked to Globus Maritime and DryShips, both stocks that fell 99%. Shortly thereafter, Sorrento began issuing press releases related to COVID-19, culminating in a widely circulated May 15th Fox News article where Sorrento’s CEO Dr. Henry Ji claimed, “We want to emphasize there is a cure. There is a solution that works 100 percent.” Dr. Ji went on to claim the treatment could be available before a vaccine. Multiple journalists have pointed out that this story was widely shopped and rejected by more reputable publications, but nonetheless, Sorrento’s stock was off to the races, rising from $2 per share to over $8 per share, equating to an enterprise value of close to $2.5 billion.
Sorrento’s approach is to use an antibody to target COVID-19, which is generally considered an inferior solution to the multiple vaccine solutions that are currently progressing in human trials. If there ends up being a role for antibody treatments, at least a dozen other antibody solutions are significantly ahead of Sorrento, including more promising prospects from Eli Lilly and Regeneron. Further, Sorrento is making these bold claims despite only conducting tests in a petri dish (i.e., Sorrento has not even conducted tests in animals, much less humans at this point). And, even the petri dish results have not been published or peer reviewed.
Investors would be well advised to treat Dr. Ji’s statements with skepticism. Sorrento has been successful at little more than burning investor cash while repeatedly changing its story to the current biotech flavor du jour (from cannabidiol to CAR-T to non-opioid pain relief). Since the 2009 reverse merger that brought Sorrento public, the company has lost money every year, including $450 million over the last three years. Also, this is not the first time Sorrento has attempted to pump its stock around an equity raise. Most recently, in November 2019, Sorrento announced it received an unsolicited non-binding proposal to acquire the company for a significant premium from an unnamed buyer. In January 2020, the company claimed to receive an even higher offer from another unnamed buyer. Sorrento “rejected” both anonymous offers, instead deciding to raise a combined $116 million in equity.
If all that is not enough, management’s track record also warrants caution. Dr. Ji was on the board of a publicly-traded company called NantKwest, which at one point fell 96% from its IPO price and engaged in some questionable related-party transactions with Sorrento. Sorrento is also on its third CFO since the reverse merger with the current CFO also sitting on the board of a publicly-traded company called Kaixin Auto Holdings, which is down 92% since going public via a SPAC last year. This is not going to end well.”
In Q1 2020, the number of bullish hedge fund positions on Sorrento Therapeutics Inc. (NASDAQ:SRNE) stock remained unchanged from the previous quarter (see the chart here). Our calculations showed that Sorrento Therapeutics Inc. (NASDAQ:SRNE) 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
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:
Disclosure: None. This article is originally published at Insider Monkey.