What’s the Deal With These 4 Plunging Stocks?

In what seems to be another swoon downwards for the S&P in afternoon trading, shares of AEterna Zentaris Inc. (USA) (NASDAQ:AEZS), Oncothyreon Inc (USA) (NASDAQ:ONTY), Harmonic Inc (NASDAQ:HLIT), and Apple Inc. (NASDAQ:AAPL) are falling even further than the index. Let’s find out why and also examine relevant hedge fund sentiment toward each stock.

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 53 percentage points (see the details here).

First up is Canadian-based biotech AEterna Zentaris Inc. (USA) (NASDAQ:AEZS). Shares of the company are off by over 31% after it announced that it is issuing 3.0 million shares of common stock and 3.0 million five year warrants to acquire 2.1 million common shares, in exchange for gross proceeds of $16.65 million. The offering translates to $5.55 for one common share and a warrant to purchase 0.7 common shares at an exercise price of $7.10 per share. Net proceeds are expected to be around $15 million and will be used to fund the company’s ongoing drug development activities, general corporate activities, and other uses, including the potential addition of commercial products to the company’s portfolio. Four elite funds that we track owned around $1.17 million worth of AEterna Zentaris Inc. (USA) (NASDAQ:AEZS) shares at the end of September. That was up from two funds with $977,000 in AEterna holdings at the end of June.

In other news, Oncothyreon Inc (USA) (NASDAQ:ONTY) shares have fallen by 28% after the company issued a press release concerning its lead product candidate ONT-380, for the treatment of HER2-positive breast cancer. According to the press release, ONT-380, when taken in combination with Kadcyla (ado-trastuzumab emtansine), showed an overall response rate of 41% and a clinical benefit rate of 59% in a phase 1b trial in patients who have failed treatment with Herceptin and a taxane for HER2-positive breast cancer, an efficacy rate that didn’t meet expectations given the stock’s sell off. Our data shows that hedge funds were bullish on Oncothyreon Inc (USA) (NASDAQ:ONTY), however. Of the 730 elite funds that we track, 19 funds were long Oncothyreon, owning 32% of the company’s float in aggregate at the end of the third quarter.

On the next page, we examine why Harmonic Inc and Apple Inc are fading fast today.
Harmonic Inc (NASDAQ:HLIT) shares have fallen by another 3.56% in mid-day trading as investors remain bearish following the company’s announcement that it will buy Thomson Video Networks for $75 million. Thomson Video Networks is a French pay-TV video infrastructure provider and Harmonic Inc (NASDAQ:HLIT) will finance the acquisition with a $125 million convertible offering. Hedge fund sentiment in the stock has been stagnant, with the number of hedge funds long Harmonic remaining unchanged at 11 during the third quarter. Because of today’s fall, Harmonic shares are down by almost 40% year-to-date.

Last but not least, Apple Inc. (NASDAQ:AAPL) shares are down by 2% in mid-day trading after Bloomberg reported that the company has suspended its plan to offer online TV service, in a move that would have accelerated cord cutting. Apple was originally planning to offer around 14 channels for $30-to-$40 per month, but ran into resistance from media companies who understandably wanted more of the pie for their programming. Apple instead will try to help companies sell their content on Apple’s App Store. CBS CEO Les Moonves still expects Apple to eventually offer a live online TV service, however. At a press conference yesterday, Moonves said:

“This will happen. It has four major networks and 10 cable networks, let’s say, and the price point will be in the $30s, $30 to $35, $40 maybe. People will not be spending money on channels they don’t want to watch.”

133 funds in our database were long Apple Inc. (NASDAQ:AAPL) at the end of Q3, making Apple a top-5 smart money holding.

Disclosure: None