Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Post Properties Inc (NYSE:PPS).
Post Properties Inc (NYSE:PPS) has experienced a decrease in enthusiasm from smart money lately. PPS was in 13 hedge funds’ portfolios at the end of the third quarter of 2016. There were 19 hedge funds in our database with PPS holdings at the end of the previous quarter. 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 NRG Energy Inc (NYSE:NRG), First Horizon National Corporation (NYSE:FHN), and Ryder System, Inc. (NYSE:R) to gather more data points.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
Hedge fund activity in Post Properties Inc (NYSE:PPS)
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, down by 32% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PPS over the last 5 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alec Litowitz and Ross Laser’s Magnetar Capital has the most valuable position in Post Properties Inc (NYSE:PPS), worth close to $108.9 million, corresponding to 1.7% of its total 13F portfolio. The second most bullish fund manager is Millennium Management, led by Israel Englander, which holds a $85.1 million position. Other peers that are bullish encompass D E Shaw, one of the biggest hedge funds in the world, John Overdeck and David Siegel’s Two Sigma Advisors and Greg Poole’s Echo Street Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually got rid of their positions entirely. At the top of the heap, Eduardo Abush’s Waterfront Capital Partners got rid of the biggest investment of all the investors studied by Insider Monkey, valued at about $5.1 million in stock, and George Hall’s Clinton Group was right behind this move, as the fund cut about $3.8 million worth of shares.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Post Properties Inc (NYSE:PPS) but similarly valued. We will take a look at NRG Energy Inc (NYSE:NRG), First Horizon National Corporation (NYSE:FHN), Ryder System, Inc. (NYSE:R), and EPAM Systems Inc (NYSE:EPAM). This group of stocks’ market caps are closest to PPS’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $273 million in PPS’s case. NRG Energy Inc (NYSE:NRG) is the most popular stock in this table. On the other hand EPAM Systems Inc (NYSE:EPAM) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Post Properties Inc (NYSE:PPS) is even less popular than EPAM. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.