Is Azure Power Global Limited (NYSE:AZRE) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Hedge fund interest in Azure Power Global Limited (NYSE:AZRE) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare AZRE to other stocks including Penn Virginia Corporation (NASDAQ:PVAC), Equity Bancshares, Inc. (NASDAQ:EQBK), and Establishment Labs Holdings Inc. (NASDAQ:ESTA) to get a better sense of its popularity. Our calculations also showed that AZRE isn’t among the 30 most popular stocks among hedge funds (see the video below).
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’ 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 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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 key hedge fund action regarding Azure Power Global Limited (NYSE:AZRE).
Hedge fund activity in Azure Power Global Limited (NYSE:AZRE)
Heading into the third quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AZRE over the last 16 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Millennium Management, managed by Israel Englander, holds the most valuable position in Azure Power Global Limited (NYSE:AZRE). Millennium Management has a $3.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Millennium Management’s heels is Perella Weinberg Partners, with a $3 million position; 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism include Renaissance Technologies, Louis Bacon’s Moore Global Investments and Philip Hempleman’s Ardsley Partners.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Perella Weinberg Partners).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Azure Power Global Limited (NYSE:AZRE) but similarly valued. These stocks are Penn Virginia Corporation (NASDAQ:PVAC), Equity Bancshares, Inc. (NASDAQ:EQBK), Establishment Labs Holdings Inc. (NASDAQ:ESTA), and Green Brick Partners Inc (NASDAQ:GRBK). This group of stocks’ market valuations match AZRE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PVAC | 17 | 191377 | 0 |
| EQBK | 5 | 41098 | -2 |
| ESTA | 7 | 58648 | -2 |
| GRBK | 15 | 254669 | 5 |
| Average | 11 | 136448 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $10 million in AZRE’s case. Penn Virginia Corporation (NASDAQ:PVAC) is the most popular stock in this table. On the other hand Equity Bancshares, Inc. (NASDAQ:EQBK) is the least popular one with only 5 bullish hedge fund positions. Azure Power Global Limited (NYSE:AZRE) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on AZRE as the stock returned 13.7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.