Although the broader markets barely moved for the last week of the third quarter with the S&P 500 up around 0.14% and the Dow Jones 0.26% in green, shares of five companies, Ophthotech Corp (NASDAQ:OPHT), Emergent Biosolutions Inc (NYSE:EBS), Cognizant Technology Solutions Corp (NASDAQ:CTSH), TD Ameritrade Holding Corp. (NASDAQ:AMTD), and First Solar, Inc. (NASDAQ:FSLR), registered more significant moves.
In this article, we will recap some of the events that caused each stock to move this week and take a look at the recent rating updates regarding them. In addition, we are going to assess the hedge fund sentiment towards the companies in question.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).
Ophthotech Corp (NASDAQ:OPHT) shares fell by more than one-fifth this week, mainly on Friday, when its peer Regeneron Pharmaceuticals Inc (NASDAQ:REGN) reported disappointing results from a Phase 2 study of the combination of aflibercept and rinucumab versus the control of aflibercept for the potential treatment of wet AMD. Given that Ophthotech’s lead product candidate, Fovista, is also a potential treatment for wet AMD (and also shares some other similarities), some shareholders headed for the exits on the news. Cowen analyst Tyler Buren thinks the market is somewhat right, as he lowered his price target to $60 per share from $80 per share, noting that Regeneron’s data is negative for all anti-PDGF drug candidates. In light of the new data, the analyst thinks the probability of success for Ophthotech’s own wet AMD treatment is now around 50%. Nevertheless, if significant benefit is reported from the results of a Phase 3 trial due out in December, Buren thinks the upside is still $80-$120 per share. David Greenspan‘s Slate Path Capital owned 430,000 shares of Ophthotech Corp (NASDAQ:OPHT) at the end of June.
Emergent Biosolutions Inc (NYSE:EBS) rallied by 11% from Monday through Friday, with most gains registered on the last day of the week when it announced that the CDC had exercised an option to procure all of the remaining BioThrax doses under an expiring contract, and when it announced the news that BARDA had awarded the company a total contract opportunity of up to $1.6 billion for anthrax countermeasures. Following the news, David Maris of Wells Fargo said that the BARDA contract win was ‘very positive news’ as it shows that the U.S. government is still committed to the biodefense of any anthrax scenarios. Maris thinks the FDA could give the thumbs up to Emergent’s NuThrax as soon as 2018 under the agency’s Emergency Use Authorization designation. Wells Fargo has a $40-$42 price target and an ‘Outperform’ rating on the stock. Out of the 749 top funds that we track, 17 of them were long Emergent Biosolutions Inc (NYSE:EBS) at the end of the second quarter, unchanged from the previous quarter.
On the next page, we examine what analysts had to say about Cognizant Technology Solutions Corp, TD Ameritrade Holding Corp, and First Solar Inc.
Cognizant Technology Solutions Corp (NASDAQ:CTSH) ended the week more than 12.4% in the red after the company disclosed that it is conducting an internal investigation as to whether certain payments relating to facilities in India were made in possible violation of the U.S. Foreign Corrupt Practices Act. The company has voluntarily notified the DoJ and SEC. In response to the news, Ashwin Shirvaikar, analyst at Citi, trimmed his price target to $55 from $68 per share and downgraded the stock to ‘Neutral’ from ‘Buy’. Although the company is making the right capital allocations for long term success and the stock is trading at an attractive valuation, Shirvaikar says that the resulting regulatory uncertainty could make the stock ‘uninvestable’ for a certain subset of investors, which will lower demand for the stock overall. The number of funds tracked by us with holdings in Cognizant Technology Solutions Corp (NASDAQ:CTSH) rose by two quarter-over-quarter to 40 at the end of June.
With rumors on the Street flying about the potential sale of Scottrade, and also rumors propagating that it might link up with peer E*TRADE Financial Corp (NASDAQ:ETFC), TD Ameritrade Holding Corp. (NASDAQ:AMTD) shares had a solid week, advancing by 6.4%. On the bull side, analyst Douglas Mewhirter of SunTrust was rather optimistic, saying that a potential purchase of Scottrade by TD Amerittrade could be as much as 10% accretive to the company’s EPS for fiscal 2017. On the bear side, William Katz of Citi thinks the rally has now left TD Ameritrade shares at prices that don’t accurately reflect the downside and leave ‘no room for a bad outcome’ such as if an accretive merger doesn’t materialize. Katz has a $31.5 price target and a ‘Neutral’ rating on the stock. Among the funds we track, 13 funds owned $183.31 million worth of TD Ameritrade Holding Corp. (NASDAQ:AMTD)’s stock, which accounted for 1.20% of the float on June 30, versus 13 funds and $159.17 million, respectively, on March 31.
Although First Solar, Inc. (NASDAQ:FSLR)’s stock gained 6.55% this week, many investors are scratching their heads as to whether the news of a potential reduction in Chinese solar tariffs is good or bad news for the American solar producer. On one hand, lower solar tariffs would weaken First Solar’s Chinese competitors, which long have been accused of being unfairly subsidized by the Chinese government. On the other hand, the lower tariffs mean the overall global solar pie is smaller, which is a bad thing. Philip Shen of Roth Capital is one of the analysts who think the latter, as he considers that the news is negative for the entire industry. However, based on First Solar’s price action on Friday, not many investors share his view. A total of 30 funds tracked by us owned shares of First Solar, Inc. (NASDAQ:FSLR) at the end of the second quarter, down by one from the previous quarter.