Hedge Funds Disagree with the Market on One of These Two Falling Stocks

Shares of Bellerophon Therapeutics Inc (NASDAQ:BLPH), and Tuesday Morning Corporation (NASDAQ:TUES) are down significantly in the afternoon trade. One stock is retracting after rallying substantially on Friday, while another just saw its CEO step down. Let’s take a closer look at the two stocks in the red today and see what the world’s greatest investors think of them.

In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 700 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 118% since the end of August 2012 and beat the S&P 500 Index by 60 percentage points (see more details here).

Shares of Bellerophon Therapeutics Inc (NASDAQ:BLPH), a clinical stage therapeutics company focused on the development of devices for the treatment of cardiac and cardiopulmonary diseases, rallied from $3.72 to over $7 on September 25 after the company had announced positive interim data from a Phase 2 study on INOpulse, which is the company’s treatment for pulmonary arterial hypertension. The Phase 2 study corroborates a previous study on INOpulse’s sustained benefits, although it is unclear whether INOpulse will be superior in any way to the other drugs that treat pulmonary arterial hypertension, such as Adcirca, Tracleer, Remodulin, and Orentiram. Around 20,000 patients have been diagnosed with pulmonary arterial hypertension in the U.S. and Europe. The market is selling off Bellerophon Therapeutics because the rally on September 25 was an overreaction given the number of drugs already on the market and the limited market size.

While the market has been selling-off Bellerophon Therapeutics Inc (NASDAQ:BLPH), our data shows that hedge funds are still bullish. A total of six hedge funds owned $45.99 million of the company’s shares (representing 44.90% of the float) on June 30, versus 7 funds and $54.72 million respectively at the end of the first quarter. Julian and Felix Bakers’ Baker Bros. Advisors owned 350,000 shares at the end of June, while Alyeska Investment Group owned 65,378 shares.

Shares of Tuesday Morning Corporation (NASDAQ:TUES) are down by almost 20% after the company announced its CEO has stepped down effective immediately. Shares of the discount retailer were off more 69% year-to-date before the news, as the company missed analyst expectations for three quarters in a row. The sudden leadership transition won’t help with the turnaround effort and doesn’t instill confidence in the stock.

Hedge funds are cautious on Tuesday Morning Corporation (NASDAQ:TUES). At the end of June, 16 hedge funds owned $54.08 million worth of the company’s outstanding stock (representing 10.90% of the float) on June 30, down from 19 funds holding $111.82 million in shares on March 31. Phill Gross and Robert Atchinson‘s Adage Capital Management raised its stake by 39% to 2.53 million shares while David Shaw’s D.E.Shaw increased its position also by 39% to 728,440 shares. George Mccabe’s Portolan Capital Management upped its holding to 129,955 shares, while Two Sigma Advisors increased its position by 87% to 78,699 shares. Going the opposite way was Ken Griffin’s Citadel Investment Group, which cut its stake by 77% to 492,993 shares, and Brian C. Freckmann’s Lyon Street Capital, which cut its exposure to the company by 59% to 234,087 shares. AQR Capital Management trimmed its stake by 14% to 38,003 shares. Meanwhile, around 19% of Tuesday Morning’s float is short.

Unlike hedge funds, analysts are bullish on Tuesday Morning. Four analysts have a ‘Buy’ rating, while two analysts have a ‘Hold’ rating. Stifel Nicolaus has a ‘Buy’ rating and a price target of $9 per share while Credit Suisse has a ‘Neutral’ rating with a price target of $17 per share. Overall, analysts have a consensus price target of $17.6 per share.

Disclosure: None