We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in Envision Solar International, Inc. (NASDAQ:EVSI) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Key Energy Services, Inc. (NYSE:KEG), Altimmune, Inc. (NASDAQ:ALT), and JAKKS Pacific, Inc. (NASDAQ:JAKK) to gather more data points. Our calculations also showed that EVSI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Sander Gerber of Hudson Bay Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to review the fresh hedge fund action regarding Envision Solar International, Inc. (NASDAQ:EVSI).
How have hedgies been trading Envision Solar International, Inc. (NASDAQ:EVSI)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 1 hedge funds held shares or bullish call options in EVSI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Arosa Capital Management held the most valuable stake in Envision Solar International, Inc. (NASDAQ:EVSI), which was worth $1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $0.3 million worth of shares. Hudson Bay Capital Management was 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 Arosa Capital Management allocated the biggest weight to Envision Solar International, Inc. (NASDAQ:EVSI), around 0.17% of its 13F portfolio. Hudson Bay Capital Management is also relatively very bullish on the stock, designating 0.0015 percent of its 13F equity portfolio to EVSI.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Hudson Bay Capital Management. 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 Arosa Capital Management).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Envision Solar International, Inc. (NASDAQ:EVSI) but similarly valued. These stocks are Key Energy Services, Inc. (NYSE:KEG), Altimmune, Inc. (NASDAQ:ALT), JAKKS Pacific, Inc. (NASDAQ:JAKK), and Flexible Solutions International, Inc. (NYSE:FSI). All of these stocks’ market caps resemble EVSI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KEG | 4 | 6430 | -4 |
| ALT | 4 | 303 | 1 |
| JAKK | 4 | 2798 | 0 |
| FSI | 1 | 926 | 0 |
| Average | 3.25 | 2614 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.25 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $2 million in EVSI’s case. Key Energy Services, Inc. (NYSE:KEG) is the most popular stock in this table. On the other hand Flexible Solutions International, Inc. (NYSE:FSI) is the least popular one with only 1 bullish hedge fund positions. Envision Solar International, Inc. (NASDAQ:EVSI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EVSI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EVSI investors were disappointed as the stock returned -20.6% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.