Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Bloom Energy Corporation (NYSE:BE).
Bloom Energy Corporation (NYSE:BE) shareholders have witnessed an increase in hedge fund interest recently. BE was in 11 hedge funds’ portfolios at the end of the second quarter of 2019. There were 9 hedge funds in our database with BE positions at the end of the previous quarter. Our calculations also showed that BE 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. Let’s take a look at the recent hedge fund action encompassing Bloom Energy Corporation (NYSE:BE).
What does smart money think about Bloom Energy Corporation (NYSE:BE)?
At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the first quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in BE a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Royce & Associates held the most valuable stake in Bloom Energy Corporation (NYSE:BE), which was worth $10.6 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $5.5 million worth of shares. Moreover, Balyasny Asset Management, Point72 Asset Management, and Citadel Investment Group were also bullish on Bloom Energy Corporation (NYSE:BE), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Royce & Associates, managed by Chuck Royce, established the biggest position in Bloom Energy Corporation (NYSE:BE). Royce & Associates had $10.6 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $3.7 million position during the quarter. The following funds were also among the new BE investors: Sander Gerber’s Hudson Bay Capital Management, Allan Teh’s Kamunting Street Capital, and Perella Weinberg Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Bloom Energy Corporation (NYSE:BE) but similarly valued. We will take a look at Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY), HudBay Minerals Inc (NYSE:HBM), Heron Therapeutics Inc (NASDAQ:HRTX), and BMC Stock Holdings, Inc. (NASDAQ:BMCH). This group of stocks’ market caps are similar to BE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLAY | 21 | 331682 | 0 |
| HBM | 12 | 224548 | 1 |
| HRTX | 18 | 400466 | -13 |
| BMCH | 25 | 243038 | -4 |
| Average | 19 | 299934 | -4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $300 million. That figure was $30 million in BE’s case. BMC Stock Holdings, Inc. (NASDAQ:BMCH) is the most popular stock in this table. On the other hand HudBay Minerals Inc (NYSE:HBM) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Bloom Energy Corporation (NYSE:BE) is even less popular than HBM. Hedge funds dodged a bullet by taking a bearish stance towards BE. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BE investors were disappointed as the stock returned -73.5% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
