How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding American Public Education, Inc. (NASDAQ:APEI).
Is APEI a good stock to buy now? American Public Education, Inc. (NASDAQ:APEI) has seen a decrease in support from the world’s most elite money managers of late. American Public Education, Inc. (NASDAQ:APEI) was in 12 hedge funds’ portfolios at the end of September. The all time high for this statistics is 16. Our calculations also showed that APEI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a peek at the key hedge fund action surrounding American Public Education, Inc. (NASDAQ:APEI).
Do Hedge Funds Think APEI Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in APEI a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of American Public Education, Inc. (NASDAQ:APEI), with a stake worth $35.8 million reported as of the end of September. Trailing Renaissance Technologies was Portolan Capital Management, which amassed a stake valued at $10 million. Chilton Investment Company, Arrowstreet Capital, and D E Shaw 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 Portolan Capital Management allocated the biggest weight to American Public Education, Inc. (NASDAQ:APEI), around 1.13% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, designating 0.22 percent of its 13F equity portfolio to APEI.
Since American Public Education, Inc. (NASDAQ:APEI) has faced falling interest from hedge fund managers, it’s easy to see that there were a few money managers that slashed their entire stakes in the third quarter. At the top of the heap, Michael Gelband’s ExodusPoint Capital dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising about $0.5 million in stock. Roger Ibbotson’s fund, Zebra Capital Management, also dumped its stock, about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 4 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to American Public Education, Inc. (NASDAQ:APEI). We will take a look at Consolidated Communications Holdings Inc (NASDAQ:CNSL), ChannelAdvisor Corp (NYSE:ECOM), SP Plus Corp (NASDAQ:SP), Enerplus Corp (NYSE:ERF), The Children’s Place Inc. (NASDAQ:PLCE), Tekla Life Sciences Investors (NYSE:HQL), and WAVE Life Sciences Ltd. (NASDAQ:WVE). This group of stocks’ market caps resemble APEI’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $75 million in APEI’s case. WAVE Life Sciences Ltd. (NASDAQ:WVE) is the most popular stock in this table. On the other hand Tekla Life Sciences Investors (NYSE:HQL) is the least popular one with only 2 bullish hedge fund positions. American Public Education, Inc. (NASDAQ:APEI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for APEI is 46.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on APEI as the stock returned 17.5% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.