Why Are These Stocks Losing Ground Today?

With the Shanghai index down 7% overnight for the second time this week, volatility and fear have spiked on Wall Street. Among the losers on Thursday are Sunedison Inc (NYSE:SUNE), Avon Products, Inc. (NYSE:AVP), Epizyme Inc (NASDAQ:EPZM), Alibaba Group Holding Ltd (NYSE:BABA), and Galena Biopharma Inc (NASDAQ:GALE). In this article, we are going to take a closer look at the latest developments that have sent these stocks lower today.

Moreover, we will also examine relevant hedge fund sentiment toward the equities. We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

Sunedison Inc (NYSE:SUNE) shares are 17% lower today after the company announced plans to issue 39.8 million common shares to pay off $738 million in debt. The company also plans to issue warrants for 28.7 million shares to receive another $725 million in loans that have an interest rate of 10% higher than the Libor. Although Sunedison Inc (NYSE:SUNE)’s plans will deleverage the company and buy it more time, shareholders didn’t like the dilution part and sold the stock. David Einhorn’s Greenlight Capital owned 18.61 million shares of the solar stock at the end of the third quarter.

Avon Products, Inc. (NYSE:AVP) can’t seem to catch a break, as its shares are 12.5% in the red today on the back of broader market weakness and technical selling. Avon shares closed below a key technical moving average yesterday and bearish investors are betting that the downside momentum will continue. Hedge funds were mixed on Avon Products, Inc. (NYSE:AVP) in the time period from June 30 to September 30. Although the number of funds with long positions increased to 30 from 26, the total value of their holdings in the stock declined to $246.41 million (representing 17.50% of the float) from $420.64 million.

On the next page, we examine Epizyme, Alibaba Group Holding, and Galena Biopharma.

Epizyme Inc (NASDAQ:EPZM) fell by another 15% today as selling on the back of the company’s Tuesday aftermarket announcement of a proposed public offering of common stock to raise $120 million continues. Because $120 million represents a big chunk of Epizyme Inc (NASDAQ:EPZM)’s under $500 million market cap, the company was only able to sell its stock for $9 per share before underwriting discounts. Epizyme plans to use the raised funds to finance the global development costs of tazemetostat, the company’s novel oral EZH2 inhibitor, outside of Japan, and other activities.

The correlation between Alibaba Group Holding Ltd (NYSE:BABA) and the Shanghai index continues, as Alibaba shares are down by 4.6% due to the Shanghai index’s 7% fall last night. If the price action of the Shanghai market is a leading indicator of the Chinese economy, China’s economy might not be out of the woods just yet and Alibaba Group Holding Ltd (NYSE:BABA) earnings could slow more than expectations. According to our data, hedge funds were underweight on Alibaba in the third quarter. A total of 60 funds reported stakes worth $3.79 billion (representing 2.60% of the float) at the end of September, versus 85 funds and $4.77 billion at the end of June.

Not to be left out, Galena Biopharma Inc (NASDAQ:GALE) shares are off by 27.5% after the company announced it, ‘intends to offer shares of its common stock and warrants to purchase its common stock in an underwritten public offering’ to finance its Phase 3 PRESENT study and other clinical trials of its product candidates. The company also plans to use the money for general corporate purposes. Four funds from our database held 1.1% of Galena Biopharma Inc (NASDAQ:GALE)’s float at the end of the third quarter.

Disclosure: none