By Andrei Braghiş
Apex Capital is a San Francisco-based long/short equity hedge fund that focuses on U.S.-traded stocks. Founded in 1995, the fund has established an excellent reputation among its peers, and is a particularly interesting candidate for piggyback investors to watch.
Why pay attention?
It's important to track hedge fund sentiment, because on the whole, their best picks have been shown to outperform the market by as much as 18 percentage points a year. Best of all, retail investors can capitalize on this phenomenon, but they have to know where to look first (learn the details of this strategy here).
Top five holdings
Apex Capital's biggest investment is MGM Resorts (NYSE:MGM), a company that operates casino resorts. MGM stock has been in an uptrend since the start of the year, advancing 45% to a current price of approximately $15. MGM sports a beta of 2.46, which makes it a volatile, yet risky investment. Fourteen analysts recommend it as a Hold, while 13 recommend it as a Buy or Strong Buy. The Street expects revenues to grow in the near future, but believes the company will continue to bleed money. Analysts target a price of $12-$17 for this stock. MGM has recently announced the building of a new casino resort in Springfield, Massachusetts and an exchange offer for 6.750% Senior Notes due 2020.
The management of Apex Capital has also added 12% to its ownership of Marvell Technology (NASDAQ:MRVL), taking the tally to 2.5 million shares. The chip producer's stock is traded at a trailing Price to Earnings (P/E) ratio of 19.54 and a forward P/E ratio of 11.72, underlying the belief of the market that Marvell will post higher revenues and earnings in the future. The stock has a beta of 0.68, making it a reasonably safe investment. The dividend of $0.24 translates into a yield of 2.20%. Analysts expect the company to register smaller revenues and earnings in 2013, but to get back on track in 2014. They have set a price range of $7.75-$15. The stock is currently trading at approximately $10 a share.
Apex's share in Hertz Global (NYSE:HTZ) has been increased by 60,000 shares, taking the fund's total holding to more than 1.7 million shares. The holding company of the famous car rental services provider has seen its stock price constantly rise since the start of the year, managing a 48% advance during the first four months. The stock is traded at a trailing P/E ratio of 36.10 and has a beta of 2.78. A forward P/E ratio of 9.99 suggests that Wall Street expects the company to thrive and register significant growth in its revenues and earnings. Four analysts recommend the stock as a Buy and another 4 consider it a Strong Buy. Only one analyst expects Hertz Global to Under perform.
A new presence in the top picks of Apex Capital is Dendreon (NASDAQ:DNDN), a company that engages in the research of cancer-treating therapeutics. This stock is tagged as risky, as it has a beta of 2.81. Analysts are optimistic with regard to revenues, however, they expect the company to post negative earnings per share in the near term, making this a speculative play at best.
The hedge fund has made a significant investment in Impax Laboratories (NASDAQ:IPXL), another pharmaceutical company. Apex bought 1.2 million shares of Impax, bringing it into the fund's top five holdings. The stock is down 21% in 2013 and is currently trading at a price of approximately $16. Analysts have a good feeling about this stock, as nine of them are recommending it as a Hold. Two analysts tag it as a Strong Buy. They also target a price range of $15-$25. Analysts estimate the revenues of Impax to fall 20% in 2013 but rise again in 2014. They expect earnings to follow the same pattern.
Apex Capital's major holdings are a mixture of risky stocks and established companies that are growing at a steady pace. The management team has made an interesting bet by opening large positions in two drug manufacturers, but we think the other positions will balance the portfolio, while providing stability. We recommend keeping an eye on Hertz Global, and it's also important to learn more about what 13F filings can reveal. The answer may surprise you.