Will Apergy Corporation (APY) Burn These Hedge Funds?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Apergy Corporation (NYSE:APY).

Is Apergy Corporation (NYSE:APY) a superb investment now? The smart money is in an optimistic mood. The number of long hedge fund bets went up by 3 in recent months. Our calculations also showed that APY isn’t among the 30 most popular stocks among hedge funds (view the video below). APY was in 15 hedge funds’ portfolios at the end of June. There were 12 hedge funds in our database with APY positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson, Carlson Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the latest hedge fund action regarding Apergy Corporation (NYSE:APY).

What does smart money think about Apergy Corporation (NYSE:APY)?

Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in APY over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with APY Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Steven Richman’s East Side Capital (RR Partners) has the largest position in Apergy Corporation (NYSE:APY), worth close to $70.4 million, comprising 7.8% of its total 13F portfolio. On East Side Capital (RR Partners)’s heels is D E Shaw, led by D. E. Shaw, holding a $10.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions comprise Till Bechtolsheimer’s Arosa Capital Management, Clint Carlson’s Carlson Capital and Brandon Haley’s Holocene Advisors.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Apergy Corporation (NYSE:APY) headfirst. Arosa Capital Management, managed by Till Bechtolsheimer, created the biggest position in Apergy Corporation (NYSE:APY). Arosa Capital Management had $9.2 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also made a $7.9 million investment in the stock during the quarter. The following funds were also among the new APY investors: Cliff Asness’s AQR Capital Management, Joel Greenblatt’s Gotham Asset Management, and Andre F. Perold’s HighVista Strategies.

Let’s now review hedge fund activity in other stocks similar to Apergy Corporation (NYSE:APY). These stocks are Yamana Gold Inc. (NYSE:AUY), American Equity Investment Life Holding Company (NYSE:AEL), CONMED Corporation (NASDAQ:CNMD), and Wolverine World Wide, Inc. (NYSE:WWW). This group of stocks’ market valuations are similar to APY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AUY 18 120611 0
AEL 17 89771 0
CNMD 19 238590 -2
WWW 12 49072 -7
Average 16.5 124511 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $123 million in APY’s case. CONMED Corporation (NASDAQ:CNMD) is the most popular stock in this table. On the other hand Wolverine World Wide, Inc. (NYSE:WWW) is the least popular one with only 12 bullish hedge fund positions. Apergy Corporation (NYSE:APY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately APY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); APY investors were disappointed as the stock returned -19.4% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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