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Apergy Corporation (APY): Hedge Funds In Wait-and-See Mode

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Apergy Corporation (NYSE:APY) based on that data.

Hedge fund interest in Apergy Corporation (NYSE:APY) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare APY to other stocks including HMS Holdings Corp. (NASDAQ:HMSY), Natera Inc (NASDAQ:NTRA), and Stitch Fix, Inc. (NASDAQ:SFIX) to get a better sense of its popularity.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the fresh hedge fund action surrounding Apergy Corporation (NYSE:APY).

How have hedgies been trading Apergy Corporation (NYSE:APY)?

At Q4’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards APY over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is APY A Good Stock To Buy?

More specifically, East Side Capital (RR Partners) was the largest shareholder of Apergy Corporation (NYSE:APY), with a stake worth $62.6 million reported as of the end of September. Trailing East Side Capital (RR Partners) was AQR Capital Management, which amassed a stake valued at $21.1 million. Balyasny Asset Management, D E Shaw, and Winton Capital Management were 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 East Side Capital (RR Partners) allocated the biggest weight to Apergy Corporation (NYSE:APY), around 7.19% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, earmarking 0.81 percent of its 13F equity portfolio to APY.

Seeing as Apergy Corporation (NYSE:APY) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few fund managers who were dropping their positions entirely heading into Q4. At the top of the heap, Till Bechtolsheimer’s Arosa Capital Management sold off the biggest investment of the 750 funds followed by Insider Monkey, totaling about $7.9 million in stock. Vince Maddi and Shawn Brennan’s fund, SIR Capital Management, also dropped its stock, about $3.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Apergy Corporation (NYSE:APY) but similarly valued. These stocks are HMS Holdings Corp. (NASDAQ:HMSY), Natera Inc (NASDAQ:NTRA), Stitch Fix, Inc. (NASDAQ:SFIX), and Allegheny Technologies Incorporated (NYSE:ATI). This group of stocks’ market caps are closest to APY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HMSY 25 137946 1
NTRA 33 325243 9
SFIX 28 299710 5
ATI 27 146160 5
Average 28.25 227265 5

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $227 million. That figure was $119 million in APY’s case. Natera Inc (NASDAQ:NTRA) is the most popular stock in this table. On the other hand HMS Holdings Corp. (NASDAQ:HMSY) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Apergy Corporation (NYSE:APY) is even less popular than HMSY. Hedge funds dodged a bullet by taking a bearish stance towards APY. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately APY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); APY investors were disappointed as the stock returned -83.2% 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 most of these stocks already outperformed the market so far in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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