It’s Wednesday, and shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Concordia Healthcare Corp (NASDAQ:CXRX), SanDisk Corporation (NASDAQ:SNDK), NeoGenomics, Inc. (NASDAQ:NEO), and SolarWinds Inc (NYSE:SWI) are trending for various reasons. Let’s find out why.
We at Insider Monkey track hedge funds. In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 730 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points (see more details here).
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is down by 26.2% after Citron Research published a report accusing the company of sending some business through phantom specialty pharmacies to avoid auditor scrutiny. Investors worry the report could draw additional regulatory scrutiny to Valeant and are in sell first, ask questions later mode. Valeant shares are down 27% year-to-date because of investor worries over potential future government drug price regulations and now the negative publicity concerning some of the company’s accounting practices. Management is adjusting to the times, saying that the company will spend more on R&D and rely less on price hikes for revenue growth. The changes will reduce margins and growth, but will make its practices more sustainable. Management will still need to answer some questions over Citron’s report, however.
Hedge funds were bullish on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) in the second quarter. Of the 730 elite funds we track, 98 funds owned $22.02 billion worth of the company’s shares (representing 29.10% of the float) on June 30, versus 104 funds and $20.11 billion respectively at the end of March. Bill Ackman‘s Pershing Square owns 19.47 million shares, while John Paulson’s Paulson & Co owns 9.0 million shares. Jeffrey Ubben’s ValueAct Capital owns 14.99 million shares.
Concordia Healthcare Corp (NASDAQ:CXRX) lost over 20% on the back of Valeant’s problems. Concordia Healthcare and Valeant have similar business models of growing by acquisition and cutting costs to finance its M&A. Because of the correlations in the industry, the stocks will likely continue to move somewhat in tandem. According to our data, 13 funds owned stakes with an aggregate value of $147.27 million (representing 6.1% of the float) at the end of June.
SanDisk Corporation (NASDAQ:SNDK) inched up by 2.67% after agreeing to sell itself to Western Digital Corp (NASDAQ:WDC) for $86.50 per share in cash and stock, confirming yesterday rumours. SanDisk shareholders will get $85.10 in cash and 0.0176 shares of Western Digital stock for every share of SanDisk they own if the Unisplendour transaction goes through. If the Unisplendour transaction doesn’t go through, SanDisk shareholders will get $67.50 in cash and 0.2387 shares of Western Digital for each SanDisk share. Management estimates the combined company will realize up to $500 million in synergies per year.
On the next page, we analyze why NeoGenomics and SolarWinds are trending.
NeoGenomics, Inc. (NASDAQ:NEO), a leading provider of cancer-centric genetic testing services, jumped by 24.8% after agreeing to buy GE Healthcare’s Clarient and Clarient Diagnostic Services for $275 million. Clarient reported $13 million in EBITDA and $127 million in revenue for 2014. Investors are buying shares because management expects to realize $20-$30 million in synergies from the deal by the end of the third year. If the management can unlock the promised synergies, the deal will be a home run for the company. Shares are up 70% year-to-date.
SolarWinds Inc (NYSE:SWI), a leading provider of IT management software, rallied by 16.5% after the company announced Silver Lake Partners and Thoma Bravo, LLC will acquire the company for $60.10 per share, or around $4.5 billion in cash.
Hedge funds were mixed on SolarWinds Inc (NYSE:SWI) in the time period from March 31 to June 30. Although the number of funds increased to 27 from 24, the total value of their holdings in the stock declined to $469.64 million (representing 13.30%% of the float) from $589.94 million. Stephen Mandel‘s Lone Pine Capital is long 2.52 million shares, according to its last 13F filing.