Is APLS Stock A Buy or Sell?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Apellis Pharmaceuticals, Inc. (NASDAQ:APLS).

Is APLS stock a buy? Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) investors should be aware of an increase in hedge fund sentiment in recent months. Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) was in 35 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that APLS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here).

Lei Zhang of Hillhouse Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. Keeping this in mind let’s analyze the latest hedge fund action encompassing Apellis Pharmaceuticals, Inc. (NASDAQ:APLS).

Do Hedge Funds Think APLS Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in APLS a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

More specifically, Hillhouse Capital Management was the largest shareholder of Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), with a stake worth $287.6 million reported as of the end of December. Trailing Hillhouse Capital Management was Farallon Capital, which amassed a stake valued at $130.1 million. Cormorant Asset Management, Deerfield Management, and Citadel Investment Group 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 Octagon Capital Advisors allocated the biggest weight to Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), around 10.87% of its 13F portfolio. Ghost Tree Capital is also relatively very bullish on the stock, earmarking 4.14 percent of its 13F equity portfolio to APLS.

Now, key money managers were breaking ground themselves. Octagon Capital Advisors, managed by Ting Jia, created the most valuable position in Apellis Pharmaceuticals, Inc. (NASDAQ:APLS). Octagon Capital Advisors had $31.4 million invested in the company at the end of the quarter. Ken Greenberg and David Kim’s Ghost Tree Capital also made a $18.6 million investment in the stock during the quarter. The following funds were also among the new APLS investors: Arsani William’s Logos Capital, Renaissance Technologies, and Prashanth Jayaram’s Tri Locum Partners.

Let’s go over hedge fund activity in other stocks similar to Apellis Pharmaceuticals, Inc. (NASDAQ:APLS). These stocks are SL Green Realty Corp (NYSE:SLG), frontdoor, inc. (NASDAQ:FTDR), Premier Inc (NASDAQ:PINC), Alcoa Corporation (NYSE:AA), ChemoCentryx Inc (NASDAQ:CCXI), Altair Engineering Inc. (NASDAQ:ALTR), and Valvoline Inc. (NYSE:VVV). This group of stocks’ market values resemble APLS’s market value.

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As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $539 million. That figure was $1024 million in APLS’s case. frontdoor, inc. (NASDAQ:FTDR) is the most popular stock in this table. On the other hand Altair Engineering Inc. (NASDAQ:ALTR) is the least popular one with only 16 bullish hedge fund positions. Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for APLS is 85.2. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and beat the market again by 0.4 percentage points. Unfortunately APLS wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on APLS were disappointed as the stock returned -24.3% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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