Is Apple (AAPL) A Good Stock To Buy According To Hedge Funds?

Reymerlyn Martin

Sat, Jun 1, 2019, 7:23 AM

"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 Apple Inc. (NASDAQ:AAPL).

Apple Inc. (NASDAQ:AAPL) shareholders have witnessed a sharp decrease in hedge fund sentiment during the first quarter. Our calculations also showed that AAPL isn't among the 10 most popular stocks among hedge funds anymore.

Why do we pay any attention at all to hedge fund sentiment? 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

We're going to take a gander at the recent hedge fund action regarding Apple Inc. (NASDAQ:AAPL).

How are hedge funds trading Apple Inc. (NASDAQ:AAPL)?

Heading into the second quarter of 2019, a total of 98 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from one quarter earlier. By comparison, 97 hedge funds held shares or bullish call options in AAPL a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Warren Buffett's Berkshire Hathaway held the most valuable stake in Apple Inc. (NASDAQ:AAPL), which was worth $47.4 billion at the end of the first quarter. On the second spot was Citadel Investment Group which amassed $2381.8 million worth of shares. Moreover, Fisher Asset Management, AQR Capital Management, and D E Shaw were also bullish on Apple Inc. (NASDAQ:AAPL), allocating a large percentage of their portfolios to this stock.

Since Apple Inc. (NASDAQ:AAPL) has experienced falling interest from the smart money, it's easy to see that there lies a certain "tier" of money managers that elected to cut their full holdings heading into Q3. At the top of the heap, Jim Simons's Renaissance Technologies dropped the biggest position of the 700 funds tracked by Insider Monkey, comprising close to $435.4 million in stock, and billionaire Philippe Laffont's Coatue Management was right behind this move, as the fund dumped about $88.3 million worth. These moves are interesting, as total hedge fund interest was cut by 18 funds heading into Q3.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Apple Inc. (NASDAQ:AAPL) but similarly valued. These stocks are Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), Alphabet Inc (NASDAQ:GOOG), and Berkshire Hathaway Inc. (NYSE:BRK-B). All of these stocks' market caps resemble AAPL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMZN,166,19399725,-2 GOOGL,147,11115409,1 GOOG,133,13597514,-8 BRK-B,91,20086059,4 Average,134.25,16049677,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 134.25 hedge funds with bullish positions and the average amount invested in these stocks was $16050 million. That figure was $55104 million in AAPL's case (it is only $8 billion excluding Buffett's stake though). Amazon.com, Inc. (NASDAQ:AMZN) is the most popular stock in this table. On the other hand Berkshire Hathaway Inc. (NYSE:BRK-B) is the least popular one with only 91 bullish hedge fund positions. Apple Inc. (NASDAQ:AAPL) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 2.2% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately AAPL wasn't nearly as successful as these 20 stocks (hedge fund sentiment was quite bearish on the margin); AAPL investors were disappointed as the stock returned -5.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as 13 of these stocks already outperformed the market this year.

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

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