These Two Stocks Are in the Spotlights and Hedge Funds Suggest One of Them is a Buy

Alkermes Plc (NASDAQ:ALKS) and Apollo Education Group Inc (NASDAQ:APOL) are in the news after the FDA approved Alkermes Plc’s ARISTADA for the treatment of schizophrenia while Apollo announced Gregory Iverson will replace Joseph D’Amico as the company’s permanent chief financial officer. Shares of Alkermes are up 6.24% while shares of Apollo are unchanged in after hours trading. Let’s take a closer look at the two companies and see whether the hedge fund sentiment towards them suggest any trading opportunities.

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 60 percentage points since the end of August 2012. These stocks returned a cumulative of 118% vs. a 58% gain for the S&P 500 ETF (SPY) (read more details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

Alkermes Plc (NASDAQ:ALKS)‘s ARISTADA extended-release injectable suspension is important because it is the first antipsychotic with six-week and once-monthly options for maintaining and delivering therapeutic levels of medication in the body through injection. The longer duration ensures a better compliance, although a medical professional will still have to administer the drug. The schizophrenia treatment is a billion dollar market, and analysts are optimistic about the company’s prospects. Eight analysts have a ‘Buy’ rating, one has a ‘Sell’ rating, and three have a ‘Hold’ rating. Morgan Stanley has an ‘Overweight’ rating with a $85 price target while JPMorgan Chase & Co has a ‘Buy’ rating with a $77 price target. Cowen and Company has a ‘Buy’ rating with a $80 price target. Overall, analysts have a consensus price target of $69.96, giving shares an upside of 17.04% from current levels.

In addition to ARISTADA, Alkermes also has ALKS 5461, a potential treatment for depression, and ALKS 8700, a potential treatment for multiple sclerosis, in its pipeline. If all goes well, Alkermes could have multiple blockbuster drugs in the years to come. Shares are up 8% year to date after rallying from less than $10 in 2010.

However, Alkermes Plc (NASDAQ:ALKS) still has to win the support of hedge funds. Although the number of funds decreased to 25 from 27 during the third quarter, the total value of their holdings in the stock increased to $284.69 million from $207.1 million, but it was equal to only 3% of the company at the end of June. More specifically, Ken Griffin‘s Citadel Investment Group increased its position by 115% to 1.27 million shares, while Justin John Ferayorni’s Tamarack Capital Management raised its holding by 67% to 400,000 shares. Going the other way was D. E. Shaw, which lowered its stake by 26% to 188,649 shares. Currently, some 5.44% of the drug company’s float is short.

Apollo Education Group Inc (NASDAQ:APOL), one of the world’s largest private education providers, announced that it will promote Gregory Iverson to CFO. Apollo Education could use some new management, as its shares are down 66% year to date so far. The company’s revenue is off substantially from 2013 as enrollment remains weak and the FTC investigates the company’s business practices. Education is in dire need of change, but Apollo in its current state isn’t exactly playing the role of disruptor.

According to our data, hedge funds were bullish on Apollo Education Group Inc (NASDAQ:APOL) as they amassed 25.50% of the company. A total of 27 funds reported stakes worth $353.79 million in the last round of 13F filings, up from 24 funds and $322.58 million respectively a quarter earlier. Larry Robbins‘ Glenview Capital increased its position by 41% to 7.58 million shares while Robert Rodriguez and Steven Romick’s First Pacific Advisors Llc raised its stake by 87% to 6.5 million shares. Citadel Investment Group upped its position by 1,445% to 1.44 million shares too.

Disclosure:none