So far in 2017, Opko Health (NASDAQ: OPK) has lost roughly one-third of its market cap. The stock finished 2016 down 7% due to an end-of-year plunge.
Things aren't going well for multiple reasons. That big drop at the end of last year stemmed from disappointing results from a late-stage study of Opko's experimental long-acting human growth hormone product (hGH-CTP) in adults. The company's 2015 acquisition of Bio-Reference Labs still doesn't appear to be paying off. The launch for its secondary hyperparathyroidism (SHPT) drug Rayaldee has been sluggish.
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Around 17% of Opko Health stock is owned by institutions and funds. With all of the company's woes, what are these big investors doing about Opko?
Two four-letter words
There's a four-letter word that describes the action that some institutional investors have taken with Opko Health stock -- sell. According to Morningstar, 20 funds had sold at least 10,000 shares of Opko as of June 30, 2017. Three of the largest institutional owners of Opko stock sold over 50,000 shares in recent months.
Amitim Senior Pension Funds reduced its position in Opko by more than 1.8 million shares in the second quarter. Menora Mivtachim Life Insurance sold its stake of over 1.1 million shares during the same period. Blackrock Fund Advisors shed more than 55,000 shares in the second quarter.
The most common action taken by big institutions that own Opko stock, though, was another four-letter word -- hold. More than a dozen firms that sold off in the first quarter of 2017 didn't sell more shares in the second quarter. Of the top 10 institutional owners of Opko Health stock, eight chose to sit tight over the past few months as the share price continued to fall.
How many of the large institutions that own Opko stock bought more shares in the second quarter? A grand total of zero. Although there were a few buyers in the first quarter (including five institutional investors with new positions in Opko), the second quarter was strangely quiet.
On the other hand, funds were big buyers of Opko Health stock during the second quarter. At least eight of the top funds adding to their positions in Opko in the second quarter were value funds. That's a good indication of the investing style of buyers of Opko stock these days.
One big buyer of Opko Health isn't surprising at all: CEO Phillip Frost. As of Feb. 27, 2017, Frost owned 32% of Opko. His stake is now even larger, thanks to share purchases nearly as regular as Yellowstone's Old Faithful. Frost's enthusiasm about the prospects for Opko Health seems as fervent as ever.
Best path for other investors?
It's not smart to make a decision about a stock solely on what others are doing. However, it can be useful to examine why investors are buying, selling, or holding a stock.
In Opko's case, it's easy to understand why some big investors are selling. There's not a definite end in sight to the company's problems. These investors are no doubt thinking that they can invest their money elsewhere for better returns.
The choice by some investors to hold on for now also makes sense. Wall Street analysts remain generally bullish on Opko Health despite its challenges. With the stock beaten down so much already, I suspect many are asking themselves if the drop in share price is close to bottoming out.
Those who buy Opko Health stock right now need to share the perspective that Phillip Frost and several of the funds that made purchases in the second quarter have. They need to see the current price as a bargain in view of the potential for Opko's products.
Frost, for example, continues to have high hopes for Rayaldee and Opko's prostate cancer test 4Kscore. He likes the company's long-acting oxyntomodulin program for treating obesity and type 2 diabetes. I'm sure he thinks the human growth hormone product still has a good shot at success.
If the positive future for Opko Health envisioned by Phillip Frost becomes a reality, buying right now could make you rich over the long run. My view, though, is that there can be a wisdom of crowds at times, and the situation with Opko is one of those times. Most big investors are taking a wait-and-see approach for now. That seems like the best strategy to me.
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