Why Are Investors Selling Shares of These Four Companies?

On a day where the S&P 500 is up by 0.82% and the NASDAQ is up by over 1%, shares of Green Brick Partners Inc (NASDAQ:GRBK), MannKind Corporation (NASDAQ:MNKD), Team Health Holdings LLC (NYSE:TMH), and Tokai Pharmaceuticals Inc (NASDAQ:TKAI) are down for various reasons. Let’s find out why and see what hedge funds think about these stocks.

Green Brick Partners Inc (NASDAQ:GRBK) is down by 21.33% after the company said in an 8-K filing that: ‘due to a number of factors including weather, new community development, labor shortages and an extended building cycle pushing back closings in its core markets’, it expects pre-tax income attributable to the company to be in the range of $22 million-to-$24 million for 2015, a number below market expectations. Investors were originally optimistic about the company because the U.S housing market has been red-hot, as U.S home builder confidence nears a ten-year high on the back of falling unemployment and low interest rates. The recent guidance cut will likely dampen that optimism. The stock remains a hedge fund hotel, however, as David Einhorn‘s Greenlight Capital owned 24.12 million shares and Dan Loeb’s Third Point owned 8.08 million shares at the end of June.

Why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 37 month period beginning from September 2012, returning 102% (see the details here).

MannKind Corporation (NASDAQ:MNKD) is off by 8% in afternoon trading as sentiment towards the company deteriorates. Investors originally had high expectations for the company’s inhaled insulin product, Afrezza, but sales have been lackluster so far, with Afrezza marketing partner Sanofi SA (ADR) (NYSE:SNY) recently reporting that Afrezza contributed around 2 million Euros ($2.20 million) to the company’s bottom line in the third quarter. Sanofi’s Afrezza revenues in the third quarter were comparable to the drug giant’s Afrezza sales in the second quarter. MannKind needs sales of the inhaled insulin product to pick up substantially rather than flat line for the stock to go north. Of the 730 elite funds we track, just 13 owned stakes in MannKind valued at $128.99 million on June 30. Jonathan Savitz‘s Greywolf Capital Management owned 11.1 million shares at the end of the second quarter.

On the next page, we examine why Team Health Holdings LLC and Tokai Pharmaceuticals are down. 
Team Health Holdings LLC (NYSE:TMH) is down by 4.5% after Amsurg Corp (NASDAQ:AMSG) upped its merger offer by $4 in cash to $15.49 in cash for each TeamHealth share, plus 0.768 AmSurg shares. If consummated, AmSurg’s offer would have a total value of $69.32 per TeamHealth share based on Amsurg’s closing price on October 30. That’s down slightly from AmSurg’s previous offer of $71.47 per TeamHealth share on October 20 because AmSurg’s stock price is a bit lower than before. AmSurg said it will withdraw its offer on Tuesday, November 3 at 4 pm EST if TeamHealth’s board does not engage.

Hedge funds were bearish on Team Health Holdings LLC (NYSE:TMH) during the second quarter. The number of funds with holdings in the stock declined to 22 from 31, while the total value of their holdings increased to just $632.91 million from $601.35 million, despite a greater than 10% appreciation in the stock price during that time, meaning the overall share ownership declined.

Last but not least, Tokai Pharmaceuticals Inc (NASDAQ:TKAI) is down by 13.2% due to a negative Seeking Alpha article. In the article, author Richard Pearson assigns a near-term downside of 60%-70% to the stock, as he thinks Tokai’s trial design will cause the company to fail its phase 3 tests. Pearson notes Tokai recently filed a $150 million S3 registration before the results of the firm’s Phase 3 results are known. If the company proceeds with a secondary offering, Tokai shares will fall due to increased supply in the short term.

Hedge funds were also slightly bearish on Tokai Pharmaceuticals Inc (NASDAQ:TKAI) in the second quarter. Fund ownership decreased to seven from eight while the total value of their holdings in the stock increased to $30.9 million from $28.94 million. However, while the value of stakes rose by about 7%, this was due to the stock gaining over 15% during the quarter, showing that funds actually sold off some of their shares collectively.

Disclosure: None