Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Is First Solar, Inc. (NASDAQ:FSLR) a superb stock to buy now? Hedge funds are in an optimistic mood. The number of bullish hedge fund bets advanced by 1 in recent months. Our calculations also showed that fslr isn’t among the 30 most popular stocks among hedge funds. FSLR was in 23 hedge funds’ portfolios at the end of March. There were 22 hedge funds in our database with FSLR positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a look at the latest hedge fund action encompassing First Solar, Inc. (NASDAQ:FSLR).
What does the smart money think about First Solar, Inc. (NASDAQ:FSLR)?
At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in FSLR 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.
More specifically, Park West Asset Management was the largest shareholder of First Solar, Inc. (NASDAQ:FSLR), with a stake worth $86.5 million reported as of the end of March. Trailing Park West Asset Management was Lansdowne Partners, which amassed a stake valued at $57.6 million. Electron Capital Partners, Millennium Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Lansdowne Partners, managed by Alex Snow, assembled the most outsized position in First Solar, Inc. (NASDAQ:FSLR). Lansdowne Partners had $57.6 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also made a $9.1 million investment in the stock during the quarter. The following funds were also among the new FSLR investors: Sander Gerber’s Hudson Bay Capital Management, Guy Shahar’s DSAM Partners, and Matthew Tewksbury’s Stevens Capital Management.
Let’s now review hedge fund activity in other stocks similar to First Solar, Inc. (NASDAQ:FSLR). These stocks are Leggett & Platt, Inc. (NYSE:LEG), Equitrans Midstream Corporation (NYSE:ETRN), WPX Energy Inc (NYSE:WPX), and Algonquin Power & Utilities Corp. (NYSE:AQN). This group of stocks’ market caps resemble FSLR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LEG | 10 | 27949 | 1 |
| ETRN | 19 | 559560 | -9 |
| WPX | 42 | 794081 | -4 |
| AQN | 12 | 54770 | 3 |
| Average | 20.75 | 359090 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $359 million. That figure was $358 million in FSLR’s case. WPX Energy Inc (NYSE:WPX) is the most popular stock in this table. On the other hand Leggett & Platt, Inc. (NYSE:LEG) is the least popular one with only 10 bullish hedge fund positions. First Solar, Inc. (NASDAQ:FSLR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on FSLR as the stock returned 12.9% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
