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

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.

Shares of ContraVir Pharmaceuticals Inc (NASDAQ:CTRV) are trading down by more than 24.5% on Wednesday, after having gained more than 12% yesterday on the announcement of positive results from a study of CMX157, a hepatitis B virus treatment. However, the stock gave away all of Tuesday’s gains on Wednesday, after the company priced its public offering of 4.92 million shares of common stock and warrants to purchase 2.46 million shares of common for a fixed combined price of $1.42 per unit. The stocks and the warrants will be issued separately; the latter will be exercisable on the date of issuance, for a period of five years, at an exercise price of $1.70 per share.

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Also trading in red today is Verint Systems Inc. (NASDAQ:VRNT), whose stock has lost almost 11% since the bell, trading close to its 52-week low. After the market closed on Tuesday, the company reported fourth quarter earnings of $0.90 per share, missing estimates by $0.27, and revenue of $280.79 million, which also fell short of expectations by $37.25 million. Guidance for the ongoing year was also disappointing: management envisions flattish year-over-year EPS and revenue. The company expects 2017 EPS of $3.04, versus a consensus estimate of $3.54, on revenue of $1.1 billion, versus consensus of $1.23 billion. Also contributing to Wednesday’s decline are a few downgrades, including one by Deutsche Bank, and one by Credit Suisse.

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Verint Systems Inc. (NASDAQ:VRNT) saw the number of funds long its stock drop by 38% during the fourth quarter and, at the end of 2015, 22 funds in our database were long the stock. However, Ken Fisher’s Fisher Asset Management seemed pretty bullish, as it boosted its exposure by 37% to 1.84 million shares.

Finally, there’s Opko Health Inc. (NYSE:OPK), which has declined by 7.7% so far today, after the FDA rejected the approval for RAYALDEE (calcifediol) for the treatment of secondary hyperparathyroidism in patients with stage 3 or 4 chronic kidney disease and vitamin D insufficiency, citing “deficiencies” at one of the company’s third-party contract manufacturers. However, Opko noted that deficiencies were “not specific to RAYALDEE manufacturing,” and that the manufacturer would “respond promptly” to the FDA.

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At the end of the last year, Opko saw 20 funds holding around 1% of its outstanding stock in aggregate. A noteworthy position was held by Cliff Asness’ AQR Capital Management, which disclosed ownership of 1.33 million shares in its last 13F filing.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.