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Apollo Endosurgery, Inc. (APEN): Hedge Funds In Wait-and-See Mode

Debasis Saha

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Apollo Endosurgery, Inc. (NASDAQ:APEN).

Hedge fund interest in Apollo Endosurgery, Inc. (NASDAQ:APEN) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Dover Motorsports, Inc. (NYSE:DVD), AmeriServ Financial, Inc. (NASDAQ:ASRV), and Spark Networks Inc (NYSE:LOV) to gather more data points. Our calculations also showed that APEN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]

RENAISSANCE TECHNOLOGIES

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's take a look at the key hedge fund action encompassing Apollo Endosurgery, Inc. (NASDAQ:APEN).

What have hedge funds been doing with Apollo Endosurgery, Inc. (NASDAQ:APEN)?

At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards APEN over the last 17 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Is APEN A Good Stock To Buy?

Among these funds, Nantahala Capital Management held the most valuable stake in Apollo Endosurgery, Inc. (NASDAQ:APEN), which was worth $6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $0.3 million worth of shares. Ardsley Partners was also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Nantahala Capital Management allocated the biggest weight to Apollo Endosurgery, Inc. (NASDAQ:APEN), around 0.22% of its 13F portfolio. Ardsley Partners is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to APEN.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.

Let's also examine hedge fund activity in other stocks similar to Apollo Endosurgery, Inc. (NASDAQ:APEN). These stocks are Dover Motorsports, Inc. (NYSE:DVD), AmeriServ Financial, Inc. (NASDAQ:ASRV), Spark Networks Inc (NYSE:LOV), and Computer Task Group, Inc. (NASDAQ:CTG). This group of stocks' market values match APEN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DVD,4,7197,0 ASRV,4,6176,0 LOV,6,15127,3 CTG,7,13528,-2 Average,5.25,10507,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $6 million in APEN's case. Computer Task Group, Inc. (NASDAQ:CTG) is the most popular stock in this table. On the other hand Dover Motorsports, Inc. (NYSE:DVD) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Apollo Endosurgery, Inc. (NASDAQ:APEN) is even less popular than DVD. Hedge funds dodged a bullet by taking a bearish stance towards APEN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately APEN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); APEN investors were disappointed as the stock returned -15.2% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

Disclosure: None. This article was originally published at Insider Monkey.

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