This Metric Shows That One of These Three Falling Stocks Is Worth Buying

Zosano Pharma Corp (NASDAQ:ZSAN), OvaScience Inc (NASDAQ:OVAS), and Comtech Telecomm. Corp. (NASDAQ:CMTL) fell significantly in after-hours trade yesterday. Let’s take a closer look at the three after-hours losers and see what the smart money thinks about 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).

Zosano Pharma Corp (NASDAQ:ZSAN) was off more than 50% in pre-market trade after the biotech company announced it will terminate the development of its Daily ZP-PTH treatment for severe osteoporosis. Zosano made the decision after Japanese regulatory authorities gave stringent feedback that required additional studies. The additional studies would have delayed commercialization in Japan for a year and imposed significant add-on costs for the company. In conjunction with the news, Zosano agreed to discontinue its collaboration with Lilly on Daily ZP-PTH and will resume efforts in developing and commercializing a weekly ZP-PTH product instead. Shares of Zosano are off more than 70% year to date.

According to our data, hedge funds are cautious on Zosano Pharma Corp (NASDAQ:ZSAN). Five hedge funds owned $8.09 million of the company’s shares (representing 9.30% of the float) on June 30, down from six funds and $12.28 million respectively on March 31. Kevin Kotler’s Broadfin Capital owns 485,000 shares, while Jacob Gottlieb’s Visium Asset Management owns 425,000 shares.

OvaScience Inc (NASDAQ:OVAS), a fertility company focused on the development and commercialization of treatment options, is down significantly after announcing that it won’t meet its 2015 target of 1,000 treatment cycles for Augment.

“We are adapting our regional commercial operations and infrastructure as well as addressing an even more dynamic global IVF landscape. In addition, we recently became aware of M&A activities in our key clinics. We believe these factors will prevent us from achieving our goal as we had anticipated the majority of AUGMENT treatment cycles would initiate in the fourth quarter. While disappointing in the short-term, the expanding clinic networks may enable more patients to have access to the AUGMENT treatment. With the positive patient experience to date, including multiple healthy births, we remain confident in the commercial potential of the AUGMENT treatment and our future fertility treatments,” the company said in a statement

The company remains on track to achieve its goals for OvaPrime and OvaTure for 2015, however.

Smart money is mixed on OvaScience Inc (NASDAQ:OVAS). While 14 hedge funds owned $210.07 million of the company’s shares (representing 26.70% of the float) on June 30, versus 13 funds and $219.98 million respectively on March 31, 40.4% of OvaSceince’s float is short. Donald Chiboucis’ Columbus Circle Investors increased its position by 18% to 278,531 shares during the second quarter, while Mark Kingdon’s Kingdon Capital upped its “Call” position by 570% and currently contains options underlying 670,000 shares. Phill Gross and Robert Atchinson‘s Adage Capital Management kept its position the same at 2.53 million shares.

Comtech Telecomm. Corp. (NASDAQ:CMTL) was down by more than 9% after the company updated its fiscal year 2016 earnings guidance to $1.34-$1.50 per share and revenue guidance to $300-310 million. Analysts are expecting $1.78 in EPS on revenues of $353.27 million instead. Comtech stock has struggled this year as a strong dollar and low oil prices weigh on the company’s fundamentals.

Hedge funds are bullish on Comtech Telecomm. Corp. (NASDAQ:CMTL). A total of 11 hedge funds owned $79 million of the company’s shares (representing 16.90% of the float) on June 30, versus 12 funds and $80.69 million respectively on March 31. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital increased its position by 105% to 58,963 shares, while Cliff Asness’ AQR Capital Management upped its stake by 12% to 95,620 shares. Going the opposite way was First Eagle Investment Management, which inched down its position by 1% to 1.7 million shares.

Disclosure: None