Here Is Why Investors Are Talking Technology and Biotech This Morning

The highly anticipated interest rate hike took place on Wednesday, as the Fed lifted rates by 25 basis points, for the first time since 2006. The stock market ended yesterday’s trading session on a high note, but turned south today shortly after the opening bell. In this article, will take a look at KaloBios Pharmaceuticals Inc (NASDAQ:KBIO), Micron Technology, Inc. (NASDAQ:MU), SolarCity Corp (NASDAQ:SCTY), and Valeant Pharmaceuticals Intl Inc (NYSE:VRX) to find out what got investors talking about them.

Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% over the last 38 months and outperformed the S&P 500 Index by more than 53 percentage points (see the details here).

KaloBios Pharmaceuticals Inc (NASDAQ:KBIO) crashed today after its freshly appointed CEO was arrested on securities fraud charges. Prosecutors are charging Martin Shkreli with illegally using stock from Retrophin Inc, a company he started in 2011, to repay debts at his former hedge fund, MSMB Capital Management. Shkreli made a name for himself when he raised the price for Daraprim, a drug developed to fight parasitic infections, by 5,000%, triggering an avalanche of criticism from prominent figures, including Hilary Clinton. On November 19, Shkreli announced that he had a majority interest in KaloBios, proclaiming himself CEO and Chariman of the company. The stock exploded from $1 to $45 after the announcement and has ended yesterday’s trading session at $23.59 per share.

At the end of the third quarter, Jim Simons‘ Renaissance Technologies was the only fund holding KaloBios Pharmaceuticals Inc (NASDAQ:KBIO) shares. The company announced the winding down of its operations a few days before Martin Shkreli took it over, which explains why Renaissance Technologies dumped 76% of its holding during the quarter.

Shares of Micron Technology, Inc. (NASDAQ:MU) have opened higher, after Morgan Stanley upgraded the stock to ‘Overweight’ from ‘Equal-weight’ earlier today. The firm has also increased its price target to $18 from the previous target of $16 per share. In a note to clients, Morgan Stanley argues the company is set to benefit from an increased capital intensity and a higher demand for DRAM chips stemming from China. Shares are currently trading at $14.55, up by 3.5% from yesterday’s closing price.

Elite hedge funds tended to distance themselves from Micron Technology, Inc. (NASDAQ:MU) during the third quarter, as the number of positions dropped to 71 at the end of September from 79 a quarter earlier. David Einhorn was also among those dumping the stock, having reduced his position by nearly 70%. At the end of the quarter, Greenlight Capital reported ownership of 12.4 million shares of Micron valued at $185 million.

The solar and wind euphoria is still strong, as stocks like SolarCity Corp (NASDAQ:SCTY) have continued their advance after U.S. legislators announced a deal to extend federal subsidies on Tuesday. According to the legislation, solar companies may claim tax credits up to 30% of the value of solar panels until the end of 2019, which will then gradually decrease to 10% by the end of 2022 and remain constant from there on.

Approximately 21% of SolarCity Corp (NASDAQ:SCTY)’s common stock was held by 29 hedge funds at the end of September, down from 34 at the end of June. From the hedge funds that we follow, Karthik Sarma’s SRS Investment Management holds the largest investment in this company, which amounts to 8.02 million shares worth $342 million according to the fund’s latest 13F filing.

Bad news are piling up for shareholders of Valeant Pharmaceuticals Intl Inc (NYSE:VRX), as the stock has been downgraded by Mizuho to ‘Neutral’ from the previous ‘Buy’ rating. The firm has also decreased its price target to 130 per share, citing skepticism that the company’s partnership with Walgreens Boots Alliance Inc (NASDAQ:WBA) will help it generate sales that will top expectations. Analysts at Piper Jaffray have reiterated their Positive rating on the stock, but have slashed the price target to $133 per share, down from the previous target of $176 a share.

During the third quarter, 10 hedge funds decided to wind down their positions in Valeant Pharmaceuticals Intl Inc (NYSE:VRX), as the total number of hedge fund positions decreased to 88 by the end of September. Long time Valeant fan, Bill Ackman, was unfazed by the recent storm and has kept his stake in the company, which is the largest among the funds from our database. At the end of the third quarter, Pershing Square held approximately 19.5 million shares valued at $3.47 billion.

Disclosure: none.