#$stj

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.

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Julia La Roche is a finance reporter at Yahoo Finance.

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Have we seen the high water market in government's battle with everything pharma? Is the worst over for this challenged industry?

Those were the thoughts that went through my mind watching Valeant's deposed CEO Mike Pearson issuing a mea culpa in front of Congress for price gauging the system. When issues like this finally get to the point where there are Congressional hearings, historically it's the endpoint, not the start of an attack on what drug companies do.

Of course, that may just be symbolic, but it's a perfect jumping-off point for what I see happening in pharma at this moment.

What else drives me to the conclusion that the big drought that started with drug companies being piñatas for the presidential candidates, especially Bernie Sanders but also Hillary Clinton and Donald Trump who tweeted and trashed pharma, too, might, at last, be over?

First, we've got consolidation again, big-time consolidation, like St. Jude Med being bought by Abbott Labs for $25 billion at a substantial premium to yesterday's trading. I have long been a fan of both St. Jude CEO Dan Starks Abbott CEO Miles White, whom we spoke to today on "Squawk on the Street," and, boy, do I like this deal. I have felt that St. Jude has the better mousetraps, so to speak, when it comes to heart devices. But it has lacked the scale and the clout and the tax advantage to compete with Medtronic. Remember Medtronic merged with Covidien last year to create the biggest medical device company and to invert and cut its tax bill, something Starks pretty much acknowledged as an unfair advantage when he was last on "Mad Money."

The deal's spectacular for St. Jude shareholders and will be terrific for Abbott once it closes and we see the earnings accretion come through.

We've got two other sizable deals worth noting. Sanofi makes an extraordinary hostile bid for Medivation, another biotech with a very strong oncology franchise. The target immediately soared past the bid price.

Then AbbVie announced a $5.8 billion purchase of Stemcentrx, another company with an anti-cancer suite of products, to complete $45 billion in merger announcements in one day. That's incredible and a welcome sign given that all deals seemed to be dead on arrival after Treasury quashed the Pfizer/Allergan merger. M&A is crucial to the value underpinnings of a group that's often based on pipelines, not earnings.

Second hopeful sign? Drug companies with good earnings are rewarded with higher prices. Witness one more stunner from Cramer fave Bristol Myers, which has an amazing cancer franchise. What a horse.

But also companies that report numbers that don't exceed the consensus have done well, too. I have seen much stronger quarters than we got this morning from Celgene and yet the stock, rather than being pummeled as it might have been not that long ago, is actually rallying. A very good change of pace.

Finally, there is Valeant itself. I don't care for the stock, but it's safe to say that it's better off with Joe Papa, late of Perrigo, than it is with Pearson himself. I don't like the way Papa left Perrigo, which is, alas, in total disarray. But staunching the bleeding in Valeant is crucial to the healing of the entire group, especially Allergan, which I think is lumped in unfairly with the slash-and-burn company that Pearson ran. It makes me feel that would be within 10% of a bottom of the nearly-destroyed Allergan after the aborted Pfizer merger. Now, that's saying something indeed.

Can pharma go from roving bear market to raging bull status like so many other sectors? We've got an awful lot of signs that the drought is over so my conclusion is, yes, if you don't own any pharma, I'd say it's time to some buying.

Sell in May and go away hasn’t been very good advice so far.   See the video to understand the current market landscape and key levels to hold for this market to continue to remain “Innocent Until Proven Guilty.”

Here are the Rest of the Top 10:

American International Group, Ticker: $AIG

American International Group, $AIG, had been in a rising trend until it pulled back in late July. The 'V' shaped recovery has it back at the highs and consolidating. The RSI is in the bullish zone and the MACD rising, in support of more upside price action.

Apache, Ticker: $APA

Apache, $APA, had a strong move higher from April to the consolidation that began in late June. The leg higher off of 98 that began mid August has now consolidated and a bullish engulfing candle Friday could trigger it higher. There is support for more upside from the RSI that held in the bullish zone in the pullback and the rising MACD that crossed higher last week.

Hess, Ticker: $HES

Hess, $HES, rose out of a base around 80 and has been consolidating near 100 since July. The action Friday suggests it may be ready for the next leg higher, as it printed a long bullish candle closing near the high. Both the rising RSI and MACD support more upside and a break higher.

Starwood Hotels & Resorts, Ticker: $HOT

Starwood Hotels & Resorts, $HOT, had a choppy run higher to 85 from 2013 until mid July. The pullback that followed found the 200 day SMA and then launched it higher. Now it is consolidating at the prior high with RSI that is strong and bullish and a MACD that is positive. Friday's long bullish candle following the one Thursday suggest a break may come as soon as Monday

St. Jude Medical, Ticker: $STJ

St. Jude Medical, $STJ, also had a long run higher from the beginning of 2013 before choppy consolidation between 60 and 70 over 2014. Closer in the pullback that began in July brought it back to the 200 day SMA and it has been slowly moving higher since. Friday's candle higher out of the series of 7 doji candles, confirming a NR7 move higher, is supported by a rising RSI and MACD for more upside.

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