There are three stocks getting beaten and bruised on high trading volume this morning, all for very different reasons. Let’s run through the news concerning each and try to determine whether they make good buys on their current weakness, or should be avoided like the plague.
Tetraphase Pharmaceuticals Inc (NASDAQ:TTPH)
Investors with Long Positions (as of June 30): 21
Aggregate Value of Investors’ Holdings (as of June 30): $205.76 Million
Let’s start with Tetraphase Pharmaceuticals Inc (NASDAQ:TTPH), which lands on this list for the second-straight day after shares crashed by more than 78% yesterday on the news that its IGNITE2 phase 3 clinical trial for Eravacycline failed to meet its primary endpoint. That news was met with a flurry of downgrades from analysts, ten in all, despite the fact shares had already crashed, which suggests that there is little hope for the company to turn things around, at least in the near-term. That appears to be bearing out on the markets today, as shares have fallen by another 9%, dragging down their year-to-date decline to over 78%. Thus, we don’t believe it makes for a good investment even after its severe drop. While hedge fund ownership was not overly high in Tetraphase Pharmaceuticals Inc (NASDAQ:TTPH) out of those in our database, it was the most popular stock of the three in this article. Respected investors like Steve Cohen, Ken Griffin, and Thomas Steyer are all licking their wounds today, as all had positions in the company of over 300,000 shares as of June 30.
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 underperformed 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 the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 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.
Meritage Homes Corp (NYSE:MTH)
Investors with Long Positions (as of June 30): 14
Aggregate Value of Investors’ Holdings (as of June 30): $380.18 Million
Next up is Meritage Homes Corp (NYSE:MTH), which has fallen by over 10% today as well, after the homebuilder was forced to lower its guidance for the full fiscal year. Meritage Homes cut its EPS forecast to a range of $3.30 to $3.75, with the mid-point of the range now falling below both the consensus estimates of $3.59, as well as the low end of the company’s previous guidance of $3.60 to $3.90. Meritage Homes Corp (NYSE:MTH), which builds both single-family homes and senior living communities, had relatively stable hedge fund activity during the second quarter, with hedge fund ownership remaining the same, though the value of their holdings did decline by over 8%, while the stock was only down by about 3% during that time. Ken Griffin was also stung by this stock, as he was the top shareholder of the company in our database as of June 30, owning over 2.75 million shares, though he did trim his holding by 19% during the quarter. Ken Fisher’s Fisher Asset Management also held a sizable position, of 1.76 million shares. Given that shares have hit a seven-month low today, we believe they make a good buying opportunity, as the revised guidance was primarily driven by production snags and not weakening demand.
Usa Compression Partners LP (NYSE:USAC)
Investors with Long Positions (as of June 30): 4
Aggregate Value of Investors’ Holdings (as of June 30): $4.2 Million
Lastly is Usa Compression Partners LP (NYSE:USAC), which has fallen by over 11% today after the company announced a public offering of stock, 4.0 million shares in all, priced at $19.33 per unit. The offering, which is expected to raise about $74.4 million following discounts and fees, will be used to pay down the company’s debt. Usa Compression Partners LP (NYSE:USAC) was held by just four hedge funds on June 30, though that was up from the mere two that held it on March 31. Regardless, hedge funds held less than 1% of the company’s outstanding shares, which is quite low for a company in its market cap range (just under $1 billion). Russell Lucas’ Lucas Capital Management had the largest position of those four firms, owning just over 144,000 shares worth $2.76 million. While the news today is nothing untoward and tends to be immediately priced into a stock, given the disinterest in the stock by hedge funds, we don’t recommend it at this time.
Disclosure: None
