Hedge Funds Are Wary Of These Three Collapsing Stocks

Synchronoss Technologies, Inc. (NASDAQ:SNCR), OncoGenex Pharmaceuticals Inc (NASDAQ:OGXI) and Cemtrex Inc (NASDAQ:CETX) are in the public eye today for the wrong reasons as their shares are seeing significant declines, as major indices lose 1%-to-1.8% in intraday trading. Nonetheless, it should be noted that we are going to discuss these three firms based on how hedge funds have been treating them in order to gain a more rounded understanding of whether they may be candidates for buying, holding, or selling. Tracking hedge fund activity, especially in nano- and small-cap stocks like those of Synchronoss Technologies, OncoGenex Pharmaceuticals, and Cemtrex can be a very powerful tool in the arsenal of the informed investor.

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So let’s first analyze how tracking hedge funds can help an everyday investor. Through our research, we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand, the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012, these top small-cap stocks beat the market by an impressive 60.4 percentage points, returning 118% (read the details here). Hence, a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.

Taking this into account, the first firm we will be looking at is Synchronoss Technologies, Inc. (NASDAQ:SNCR), the shares of which lost nearly 25% of their value before paring their losses down to just over 12%. The volatility and sharp decline follows a milder but still significant slide of over 4% yesterday. It should be noted that with its slump today, Synchronoss has hit a new low for 2015, and is down by 21.5% year-to-date.

Hedge funds that we track are not overly very keen on Synchronoss Technologies, Inc. (NASDAQ:SNCR) of late. Although there was an increase of three hedge funds with long positions in the stock during the second quarter to 21, their total investment in the company decreased by 3.19% to about $96.86 million. The stock declined by 3.65%, however, meaning there was a slight increase in hedge fund investment in the firm, but very minimal considering three new investors took up positions. Furthermore, only 4.90% of the firm’s outstanding shares are owned by hedge funds we follow, which is low for a small-cap stock. Brian Ashford-Russell and Tim Woolley’s Polar Capital held the largest stake in Synchronoss at the end of June among the funds we track, owning 1.09 million shares, down by 69% quarter-over-quarter.

OncoGenex Pharmaceuticals Inc (NASDAQ:OGXI)’s shares are also experiencing volatility today, losing as much as 26% in early trading before climbing higher and then going back down again to over 20% in the red. The negativity surrounding the stock is due to its just-released Phase 2 Rainer results for previously untreated metastatic pancreatic cancer. According to the biopharmaceutical firm, the addition of its drug apatorsen with ABRAXANE and gemcitabine to treat said condition was found to not have a survival benefit compared to treatment with only the latter two drugs. The firm is still studying apatorsen for treatment of lung, prostate and bladder cancers.

Hedge funds we follow owned over 9% of OncoGenex Pharmaceuticals Inc (NASDAQ:OGXI)’s shares at the end of the second quarter. However, it should be said that the number of hedge funds with long positions in the stock among those we track declined by one to seven over the course of said period. Their total holdings also decreased by over 22% during the quarter, to just over $5.0 million, which is very significant considering the stock soared by 8.27% from in the second quarter. According to our data, Mark Lampert’s Biotechnology Value Fund / Bvf Inc held 1.02 million shares of the company at the end of June, down by 26% over the quarter.

The last company in our undesirable spotlight is Cemtrex Inc (NASDAQ:CETX), which saw its shares pared by as much as 20% before slightly rebounding to 14% down in afternoon trading. One will be best served, nonetheless, to notice that the stock has soared by a massive 351% since its market debut in late June. Today’s stumble appears counterintuitive, as the firm, which supplies emission monitoring of particulates equipment in the industrials field, said that it is seeing a surge in demand for the IS 2500 Multi Gas Analyzer equipment that it makes.

Based on the Insider Monkey database, no hedge funds we track has invested in Cemtrex Inc (NASDAQ:CETX) yet since its IPO. This may be partly due to the fact that the firm is a nano-cap firm and because it debuted towards the end of June. However, it could also be that Cemtrex simply did not manage to capture hedge funds’ attention, as other late-quarter IPO’s have been able to quickly garner a great deal of hedge fund support in the past.

Disclosure: None