See Which of These Three Tuesday Losers Hedge Funds Say You Should Buy on the Dip

It seems that the U.S. equity markets are bouncing back from Monday’s substantial pullback, but there are some stocks that have been beaten down quite seriously by the market. The S&P 500 Index has advanced by more than 0.50% so far today, narrowing down yesterday’s loss of 2.57%. Esperion Therapeutics Inc. (NASDAQ:ESPR), Team Inc. (NYSE:TISI), and Galapagos NV (ADR) (NASDAQ:GLPG) are the major losers of today’s trading session, and the following article will discuss what stands behind their disappointing performance and will assess the hedge fund sentiment towards them.

But first, you should get familiar with what Insider Monkey can offer besides the high-quality evidence-based articles. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically lagged the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read more details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 118% and beating the market by more than 60 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

We will begin our discussion by analyzing the reasons that have caused the major sell-off of Esperion Therapeutics Inc. (NASDAQ:ESPR)’s shares during today’s trading session. The pharmaceutical company, that engages in the development and commercialization of a first-in-class, oral therapy for low-density lipoprotein cholesterol (LDL-C) lowering, has released an update on its planned Phase 3 trial. Esperion Therapeutics outlined that it intends to carry out several Phase 3 clinical trials that will independently investigate two groups of patients. However, it appears that that the FDA has “encouraged’ the company to start on a cardiovascular outcomes study that needs to be finalized by the time of the New Drug Application submission and review, which might serve as the primary reason why the market reacted so negatively to the update. Esperion’s stock has plummeted by more than 35% so far today, widening the year-to-date loss to 44%. In the meantime, there were 28 hedge funds tracked by us with long positions in Esperion at the end of the second quarter, compared to 24 reported in the prior quarter. Nevertheless, the value of their holdings decreased during the three-month period to $589.13 million from $590.73 million. It is also worth noting that these 28 investors amassed 32.0% of the company’s outstanding shares on June 30. Dennis Purcell’s Aisling Capital is the top equity holder of Esperion Therapeutics Inc. (NASDAQ:ESPR) within our database, holding 1.64 million shares.

Moving on to the next loser of today’s session, Team Inc. (NYSE:TISI) issued a pre-announcement indicating that the company anticipates first-quarter of fiscal 2016 adjusted earnings of $0.22 per share, compared with $0.34 reported a year ago. At the same time, the provider of specialty industrial services said it generated revenues of $222 million during the quarter that ended August 31, compared to $188 million reported in the same quarter a year ago. Most importantly, Team also reduced its full-year projections on adjusted earnings to $2.15 per share, which were revised down from $2.45-$2.60. The company’s first-quarter earnings were impacted by the weak demand within the industry and for its services in particular, which was in turn affected by the low price environment for commodities. Similarly, the foreign exchange currency headwinds also impacted Team’s financial figures. Following the news, the shares of Team have lost nearly 20% thus far in today’s trading session. The hedge fund sentiment on the stock did not change by much during the June quarter, as the number of hedge funds invested in the stock decreased to 10 from 11.  Even so, the value of these funds’ positions in Team increased to $90.06 million from $86.98 million. Finally, 10.80% of the company’s shares were owned by the relatively low number of hedge funds with stakes in Team. John W. Rogers’ Ariel Investments reduced its position in Team Inc. (NYSE:TISI) by 2% during the second quarter to 1.14 billion.

Lastly, Galapagos NV (ADR) (NASDAQ:GLPG) is losing significant ground for the second consecutive session after AbbVie Inc. (NYSE:ABBV) decided not to exercise its right to in-license the Galapagos JAK1 inhibitor, filgotinib. AbbVie intends to advance one of its internally-developed drugs to Phase 3 studies in rheumatoid arthritis instead. Even more to that, it appears that Credit Suisse’s downgrade on Galapagos might have fueled more pressure on the stock. Specifically, Credit Suisse’s analysts downgraded the stock to “Neutral” from “Outperform” earlier this morning. The shares of Galapagos are 17% in the red so far today, losing almost 40% over the past five days. 14 hedge funds observed by the Insider Monkey team owned stakes in Galapagos at the end of the second quarter, amassing 7.30% of its common stock. Meanwhile, the value of these stakes stood at $113.74 million at the end of June. James E. Flynn’s Deerfield Management acquired a 642,608-share stake in Galapagos NV (ADR) (NASDAQ:GLPG) during the second quarter.

Disclosure: None