Short-seller Carson Block is going after one of the most popular hedge fund stocks
Short-seller Carson Block, the founder of Muddy Waters Research, just revealed a short position in cardiovascular medical device maker St. Jude Medical (STJ), which is one of the more popular long positions among hedge funds.
Muddy Waters sees a “strong possibility” that “close to half” of St. Jude Medical’s revenue could disappear for two years. Specifically, Muddy Waters believes that there should be a recall of the cardio pacemakers.
“STJ’s pacemakers, ICDs, and CRTs might – and in our view, should – be recalled and remediated. (These devices collectively were 46% of STJ’s 2015 revenue.) Based on conversations with industry experts, we estimate remediation would take at least two years. Even lacking a recall, the product safety issues we present in this report offer unnecessary health risks and should receive serious notice among hospitals, physicians and cardiac patients,” Muddy Waters wrote.
Muddy Waters also raised cybersecurity concerns involving St. Jude Medical’s cardiac devices.
“We have seen demonstrations of two types of cyber attacks against STJ implantable cardiac devices (‘Cardiac Devices’): a ‘crash’ attack that causes Cardiac Devices to malfunction – including by apparently pacing at a potentially dangerous rate; and, a battery drain attack that could be particularly harmful to device dependent users. Despite having no background in cybersecurity, Muddy Waters has been able to replicate in-house key exploits that help to enable these attacks,” Muddy Waters wrote.
Shares of St. Jude slipped 7.98%, or $6.53, to last trade at $75.35.
St. Jude’s stock was the No. 2 most popular stock among the biggest hedge funds during the second quarter, according to 13F data reviewed by FactSet. Many hedge funds, including Omni Partners, Carlson Capital, and Adage Capital, snapped up an aggregate $2.3 billion worth of St. Jude Medical’s stock. The stock has risen just over 26% year-to-date. In the second quarter alone the stock gained 41%.
St. Jude Medical also debuted on Goldman Sachs’ 50 stocks that “matter most” to hedge funds, ranking No. 20 on the list. According to Goldman, approximately 22 of the hedge funds it tracks held St. Jude Medical as one of their top 10 equity long holdings at the end of the second quarter.
Hedge funds only have to disclose their long equity holdings in 13F filings. These filings come out 45 days after the end of each quarter, so it’s possibly that hedge funds have trading in and out of these positions.
Julia La Roche is a finance reporter at Yahoo Finance.
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