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Why Valeant, Fitbit & Three Other Stocks Are Deep in Red Today

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On Wednesday, major U.S. stock indexes are posting gains of more than 0.50%. However, a few stocks, including Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Fitbit Inc (NYSE:FIT), ContraVir Pharmaceuticals Inc (NASDAQ:CTRV), Verint Systems Inc. (NASDAQ:VRNT), and Opko Health Inc. (NYSE:OPK) are registering important losses. So, let’s take a look at the events behind their drop, and see what the hedge funds in our database think about these companies.

At Insider Monkey, we track almost 800 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details here).

Let’s start with Valeant Pharmaceuticals Intl Inc (NYSE:VRX), whose stock is trading down by more than 6.5% on Wednesday afternoon. The controversial pharmaceutical continues to struggle to stay afloat and is now trying to avoid a technical default on its debt. As a part of this effort, the company asked its lenders to extend the deadline to file its annual report until May 31. This move helps it lessen the chance of a default on its $30 billion debt – which would be much higher if it missed the current deadline of April 29. Management said, however, that it still plans to file the 10K with the SEC by April 29, and that it is asking for an extension, just in case.

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As most investors know, Bill Ackman’s Pershing Square is one of the largest shareholders of record at Valeant Pharmaceuticals Intl Inc (NYSE:VRX). The fund last disclosed a 9% stake in the company, which comprises about 30.71 million shares. In addition to Pershing Square, other 82 funds in our database were long Valeant at the end of the fourth quarter, with their combined stakes accounting for more than a third of the company’s total shares. Another major investor of the stock is Jeffrey Ubben’s ValueAct Capital, which held 14.99 million shares of the company on December 31.

Next up is Fitbit Inc (NYSE:FIT), whose shares have declined by 7% on Wednesday, extending the year-to-date losses to around 56%. The main element driving the decline in the stock seems to be the dramatic slowdown seen in sales, which many attribute to a lack of a replacement cycle. However, numerous analysts and investors have contended that the sell-off has been overdone, and that an attractive entry point is open right now, as the stock and the company position themselves for a rebound.

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Over the fourth quarter of 2015, shares of Fitbit Inc (NYSE:FIT) lost roughly 21.5%, and several major hedge funds took advantage of the depressed prices to build up their positions. The October-December period saw the number of funds from our database bullish on the stock increase by 35% to 27. One of the newcomers was Philippe Laffont’s Coatue Management, which started a new position comprising 1.51 million shares.

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