Is Preferred Apartment Communities Inc. (APTS) A Good Stock to Buy?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Preferred Apartment Communities Inc. (NYSE:APTS).

Preferred Apartment Communities Inc. (NYSE:APTS) investors should pay attention to an increase in hedge fund interest in recent months. APTS was in 7 hedge funds’ portfolios at the end of the third quarter of 2016. There were 2 hedge funds in our database with APTS holdings at the end of the previous quarter. At the end of this article we will also compare APTS to other stocks including Sangamo Biosciences, Inc. (NASDAQ:SGMO), Blue Bird Copr (NASDAQ:BLBD), and Central European Media Enterprises Ltd. (NASDAQ:CETV) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

What does the smart money think about Preferred Apartment Communities Inc. (NYSE:APTS)?

Heading into the fourth quarter of 2016, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, five of which were new positions, as there were only 2 hedge funds in our system with shares or bullish call options in APTS at the end of June. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, J. Alan Reid, Jr.’s Forward Management has the largest position in Preferred Apartment Communities Inc. (NYSE:APTS), worth close to $1.6 million. The second most bullish fund manager is Renaissance Technologies, one of the largest hedge funds in the world, which holds a $1.1 million position. Remaining peers that hold long positions consist of Israel Englander’s Millennium Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Ken Griffin’s Citadel Investment Group. We should note that Forward Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-micro-cap stocks.

As aggregate interest increased, some big names have been driving this bullishness. Forward Management initiated the largest position in Preferred Apartment Communities Inc. (NYSE:APTS). Two Sigma Advisors also initiated a $0.5 million position during the quarter. The other funds with brand new APTS positions are Citadel Investment Group, Cliff Asness’ AQR Capital Management, and Matthew Tewksbury’s Stevens Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Preferred Apartment Communities Inc. (NYSE:APTS). These stocks are Sangamo Biosciences, Inc. (NASDAQ:SGMO), Blue Bird Copr (NASDAQ:BLBD), Central European Media Enterprises Ltd. (NASDAQ:CETV), and MeetMe Inc (NYSEAMEX:MEET). This group of stocks’ market valuations are closest to APTS’s market valuation.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $5 million in APTS’s case. Sangamo Biosciences, Inc. (NASDAQ:SGMO) is the most popular stock in this table. On the other hand Central European Media Enterprises Ltd. (NASDAQ:CETV) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Preferred Apartment Communities Inc. (NYSE:APTS) is only as popular as CETV. 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.

Disclosure: None