Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Apergy Corporation (NYSE:APY) changed recently.
Is Apergy Corporation (NYSE:APY) worth your attention right now? Investors who are in the know are getting less optimistic. The number of bullish hedge fund positions were trimmed by 1 recently. Our calculations also showed that APY isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's check out the key hedge fund action regarding Apergy Corporation (NYSE:APY).
How have hedgies been trading Apergy Corporation (NYSE:APY)?
Heading into the second quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the fourth quarter of 2018. By comparison, 0 hedge funds held shares or bullish call options in APY a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Steven Richman's East Side Capital (RR Partners) has the biggest position in Apergy Corporation (NYSE:APY), worth close to $87.7 million, corresponding to 10.4% of its total 13F portfolio. Sitting at the No. 2 spot is Encompass Capital Advisors, managed by Todd J. Kantor, which holds a $16.5 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions comprise Ken Griffin's Citadel Investment Group, D. E. Shaw's D E Shaw and Brandon Haley's Holocene Advisors.
Due to the fact that Apergy Corporation (NYSE:APY) has experienced declining sentiment from the smart money, it's easy to see that there were a few hedgies that slashed their entire stakes last quarter. Intriguingly, David Costen Haley's HBK Investments dumped the biggest stake of the 700 funds tracked by Insider Monkey, valued at an estimated $1.6 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dumped about $0.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Apergy Corporation (NYSE:APY) but similarly valued. We will take a look at Manchester United PLC (NYSE:MANU), RBC Bearings Incorporated (NASDAQ:ROLL), Tempur Sealy International Inc. (NYSE:TPX), and Envestnet Inc (NYSE:ENV). This group of stocks' market values resemble APY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MANU,11,51988,2 ROLL,11,55043,5 TPX,29,1175502,-2 ENV,17,104260,5 Average,17,346698,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $347 million. That figure was $126 million in APY's case. Tempur Sealy International Inc. (NYSE:TPX) is the most popular stock in this table. On the other hand Manchester United PLC (NYSE:MANU) is the least popular one with only 11 bullish hedge fund positions. Apergy Corporation (NYSE:APY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately APY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); APY investors were disappointed as the stock returned -23.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.