It’s been an up-and-down day on Wall Street as the S&P 500 initially opened in the red before rallying to within a few percentage points of its all-time high. Driving some of the optimism could be crude prices, which have also made something of a comeback since a steep decline this morning. Among the stocks that are still deep in the red today are Calumet Specialty Products Partners, L.P (NASDAQ:CLMT), Chiasma Inc (NASDAQ:CHMA), Relypsa Inc (NASDAQ:RLYP), and Liberty Media Corp (NASDAQ:LMCA) / Liberty Media Corp (NASDAQ:LMCK). Let’s find out why investors are getting out of these stocks and see how the smart money is positioned in them.
At Insider Monkey, we track around 785 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on, can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see the details here).
Distribution Cut Sends Shares of Calumet Falling
Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) shares are off by more than 44% today after the company suspended its quarterly cash distribution, citing the need to manage its capital structure with ‘prudence and conservatism during a challenging period for our business’. Calumet also did a $400 million private senior secured note placement and guided for a worse-than-expected first quarter loss of $59 million-to-$83 million, compared to expectations of a loss of just $19 million. The reaction from analysts has been brutal. Four research firms downgraded Calumet Specialty Products Partners, L.P (NASDAQ:CLMT)’s stock and two other firms lowered their price targets on it. Of particular note was analysts at Howard Weil cutting their price target on the stock to $5 per share from the previous $19 per share. According to our data, some hedge funds may have seen the cut coming, as a total of five funds reported stakes worth $16.4 million (representing 1.10% of the float) at the end of December, down from eight funds with holdings valued at $22.18 million at the end of September.
The FDA Rejects Mycapssa NDA
Chiasma Inc (NASDAQ:CHMA) shares have declined by more than 61% after the FDA rejected Chiasma’s New Drug Application for Mycapssa, for the potential treatment of acromegaly. In an SEC filing, the company provided the reasons for the rejection:
‘The FDA advised Chiasma that the Agency did not believe the company’s application had provided substantial evidence of efficacy to warrant approval, and advised Chiasma that it would need to conduct another clinical trial in order to overcome this deficiency. The FDA expressed concerns regarding certain aspects of the company’s single-arm, open-label Phase 3 clinical trial and strongly recommended that the company conduct a randomized, double-blind and controlled trial that enrolls patients from the United States and be of sufficiently long duration to ensure that control of disease activity is stable at the time point selected for the primary efficacy assessment. In addition, the FDA advised that, during a recent site inspection, certain deficiencies were conveyed to the representative of one of Chiasma’s suppliers that would need to be resolved before approval. The FDA did not note any safety concerns related to Mycapssa in its letter.’
As of March 31, Chiasma had an unaudited balance of cash and cash equivalents of $134 million. The company plans to proceed with its Phase 3 trial comparing the safety and efficacy of Mycapssa to monthly somatostatin analog injections to support a Marketing Authorization Application with the European Medicines Agency. Only three funds in our database held shares of Chiasma Inc (NASDAQ:CHMA) at the end of 2015.
On the next page we examine Relypsa Inc and Liberty Media Corp’s two classes of stock are trading down today.
Relypsa Down as Technical Traders Sell
Relypsa Inc (NASDAQ:RLYP) is off by 3.2% today on no fundamental news. There are some bulls who believe that Relypsa could be acquired by a bigger drug company, given that AstraZeneca plc (ADR) (NYSE:AZN) bought hyperkalemia competitor ZS Pharma last year for $2.7 billion. There are also some doubters of that theory, as Relypsa’s drug is in some ways not as great as ZS Pharma’s ZS-9. The uncertainty and lack of a buy-out has translated to some pretty big swings in Relypsa Inc (NASDAQ:RLYP)’s stock price over the past few months. 21 elite funds tracked by Insider Monkey were long Relypsa, holding 31.7% of its float at the end of December.
Liberty Media Corp Recapitalizes into Three Tracking Stocks
It might seem that Liberty Media Corp (NASDAQ:LMCK) / Liberty Media Corp (NASDAQ:LMCA) is having a very bad day, being 50% lower today technically, but fortunately, the value in the company’s stock hasn’t changed much. The lower price is due to a planned recapitalization. The company explained the inner workings as such:
‘[the company] recapitalized its existing common stock into three new tracking stocks: the Liberty Braves common Stock, the Liberty Media (LMDIA) common Stock and the Liberty SiriusXM common Stock (the “recapitalization”). In the recapitalization, each issued and outstanding share of Liberty’s existing common stock was reclassified and exchanged for (a) 1 share of the corresponding series of Liberty SiriusXM common stock, (b) 0.1 of a share of the corresponding series of Liberty Braves common stock and (c) 0.25 of a share of the corresponding series of Liberty Media common stock.’
Hedge fund sentiment for Liberty Media Corp was stable during the fourth quarter, with 41 funds in our system owning shares of both classes of stock at the end of December, up from 40 owning Liberty Media Corp (NASDAQ:LMCA) and 39 owning Liberty Media Corp (NASDAQ:LMCK) at the end of September.