With the Dow Jones Industrial Average and the S&P 500 both losing ground amid stronger Euro and hints regarding a possible interest rate hike by the Fed later this year, Horizon Pharma plc (NASDAQ:HZNP), Zafgen Inc. (NASDAQ:ZFGN), Pandora Media Inc. (NYSE:P), Chesapeake Energy Corporation (NYSE:CHK), and Verint Systems Inc. (NASDAQ:VRNT) are hitting a snag in early trading, following noteworthy investment yardsticks including a merger failure, a full clinical halt in a drug investigation following a patient’s death and disappointing third-quarter earnings results. Subsequently, we’ll consider the hedge fund sentiment towards these stocks.
Why do we pay attention to hedge fund sentiment. Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 102% over the last 34 months and outperformed the S&P 500 Index by 53 percentage points (see the details here).
Biopharmaceutical company Horizon Pharma plc (NASDAQ:HZNP) has lost nearly 6%, amid Morgan Stanley analyst David Risinger resuming coverage on the stock, with ‘Underweight’ rating and $23.00 price target. In the research note, the analyst cited among concerns a higher payer pressure on the company’s primary care business and a possibility of Horizon’s Phase 3 STEADFAST trial for Actimmune, for treatment of Frieidrich’s ataxia, to fail next year.
A total of 44 hedge funds which Insider Monkey follows, hold stakes with a total value of $1.13 billion, equal to 35.70% of Horizon Pharma’s outstanding stock, as of the end of the third quarter of 2015. Stephen Mandel‘s Lone Pine Capital owns 15.6 million shares of Horizon Pharma, according to its latest 13F filing.
Zafgen Inc. (NASDAQ:ZFGN), another biopharmaceutical company, is trading 5% in the red, extending the 60% drop from Wednesday, after a setback to its investigational new drug (IND) called beloranib. The U.S. Food and Drug Administration placed the company’s application of the IND on full clinical hold to suspend all work to the IND after a second patient died under the drug. The patient was under the beloranib treatment for Prader-Willi syndrome, but died after being diagnosed with bilateral pulmonary emboli—blood clots in the lung.
“We are working diligently to assemble and analyze the data from our ZAF-311 clinical trial to be able to provide a clear view of the safety and efficacy of beloranib in the PWS population,” Zafgen CEO Dr. Thomas Hughes was quoted as saying in a statement.
Out of 730 hedge funds tracked by us, 14 funds have amassed around 9.50% of Zafgen Inc. (NASDAQ:ZFGN)’s outstanding stock. Deerfield Management, managed by James Flynn, holds 553,472 shares of Zafgen as of the end of September.
Pandora Media Inc. (NYSE:P) has slid by more than 9% so far, on the heels of amending its credit agreement to increase it to $500 million from $300 million. Yesterday, Pandora Media Inc. (NYSE:P) said that it intends to offer the convertible senior notes due 2020 and grants the purchasers a 30-day overallotment option to buy an additional $45 million principal amount of the notes. The company also plans to pay interest on the notes semi-annually in arrears. Pandora expects to use a portion of the net proceeds of the offering of the notes to pay the cost of its capped call transactions and to use the remaining proceeds of the offering for general corporate purposes.
A total of 36 hedge funds in our database reported long positions with an aggregate value of $1.25 billion, representing roughly 27.60%, of Pandora’s outstanding stock as of the end of September. Among them, Ricky Sandler of Eminence Capital holds 7.0 million shares in the company.
Chesapeake Energy Corporation (NYSE:CHK) has also fallen by around 10%, a day after filing a Form 8-K with the SEC in connection to its launch of private offers to exchange up to $1.5 billion of its 8.00% senior secured second lien notes due 2022. The energy company said it is offering 8.00% senior secured second lien notes due 2022 in exchange for some of its outstanding senior unsecured notes. At the end of September, a total of 34 hedge funds held long positions in Chesapeake Energy Corporation (NYSE:CHK) with a total value of $1.21 billion. Billionaire activist Carl Icahn‘s Icahn Capital LP is one of the top shareholders of Chesapeake with a stake containing over 73.0 million shares.
Verint Systems Inc. (NASDAQ:VRNT) has slid by some 13%, following a lower than expected financial results for the third quarter. Verint Systems Inc. (NASDAQ:VRNT) booked $284 million in third-quarter revenues, up from the $282 million in the same segment last year, but was lower than what the company has previously expected. Meanwhile, operating income amounted to $22 million, down from the $24 million reported a year earlier, while its net income was cut to $8.5 million, or $0.12 per share, compared to $11.5 million, or $0.17 per share posted a year earlier. Additionally, the company provided its non-GAAP outlook for the year ending January 31, 2016, which includes revenue in the range of $1.15 billion to $1.19 billion and $3.30 in EPS at the mid-point of the company’s revenue outlook.
A total of 36 hedge funds that reported long positions in Verint Systems as of the end of September hold 12.40% of the company’s outstanding stock. Andrew Feldstein and Stephen Siderow‘s Blue Mountain Capital holds 1.7 million shares of the company, according to its latest 13F filing.