It was reported today that the small first leg of an attempted 35,000 km journey around the world by solar plane has been successfully completed. The aircraft Solar Impulse-2 completed a 400 km flight from Abu Dhabi to Oman today, with the flight taking 12 hours. The aircraft’s wings, with have a 72 meter wingspan (longer than that of a Boeing 747-81 by 3.5 meters) are outfitted with 17,000 solar cells that power its flight at speeds of up to 70 km/h. The entire journey is expected to take five months, with the next planned leg taking the solar aircraft to India.
The feat speaks volumes of the advances in the solar industry, which has rapidly developed thanks to government subsidies, venture capital, and in some cases, public offerings. With the industry expected to produce energy as cost-efficiently as gasoline within the next five years, and possibly overtaking coal as the dominant source of power in the world in the next 35 years, it’s clear the future of power generation is in solar energy. This makes investing in solar companies now, before they really start to take off, an intriguing long-term investment option.
For that, we turn to hedge funds, which we know have the capability to pick winning companies, especially ones that are still in their early stages of development. Our research has shown that the collective top 15 small-cap picks of the funds we track beat the S&P 500 by an average of 18 percentage points annually between 1999 and 2009 in backtests, and by 74 percentage points over its first 2.5 years of availability.
What do hedge funds think about solar companies as of the end of 2014? Well, their first choice is quite clearly SunEdison Inc (NYSE:SUNE). 80 hedge funds had an aggregate of $3.73 billion invested in the company, which was an increase from the 79 funds with just $3.05 billion invested at the end of the third quarter. Despite its most recent earnings report missing expectations earlier this year, analysts remain bullish on SunEdison Inc (NYSE:SUNE) for its advanced place in the industry, and well-run business model, and shares are up 8.73% over the past six months, and over 1200% over the past 34 months.
SunEdison Inc (NYSE:SUNE) recently became the first renewable energy company to offer solar, wind, and energy storage services, after acquiring the projects, pipeline, and project origination team from Solar Grid Storage LLC. David Einhorn’s Greenlight Capital was the largest shareholder of SunEdison Inc (NYSE:SUNE) among funds we track at the end of 2014, with ownership of 24.95 million shares. In addition, Mr. Einhorn pitched SunEdison Inc (NYSE:SUNE) during Robin Hood Investor Conference last year. Fir Tree, managed by Jeffrey Tannenbaum, and Third Point led by Dan Loeb are two other large investors, with stakes of 12.16 million and 11.25 million shares respectively.
There is a large drop in fund ownership after SunEdison, to a number of solar energy companies with fund ownership in the 20 to 30 range. The next highest of those was SolarCity Corp (NASDAQ:SCTY) with 31 funds owning the stock, though that was a drop from 37 at the end of the third quarter. Aggregate among of capital invested in it also slipped to $1.05 billion from $1.18 billion, though that is almost entire attributable to an 11.94% drop in SolarCity Corp (NASDAQ:SCTY)’s shares during the quarter, with invested capital otherwise staying relatively flat.
However, while analysts are bullish on SunEdison Inc (NYSE:SUNE) they are quite the opposite with SolarCity Corp (NASDAQ:SCTY). Increasing competition is expected to prove a challenge for the company, and its increasing volume of insider sales is also pointed at as a potential sign that the peak has been reached. Karthik Sarma’s SRS Investment Management was the largest shareholder of SolarCity Corp (NASDAQ:SCTY) among the funds that we track with an even 8.0 million shares. Barry Rosenstein of JANA Partners was also bullish on SolarCity Corp (NASDAQ:SCTY), opening a new 5.16 million share stake while shares lost some ground during the fourth quarter.
Lastly is First Solar, Inc. (NASDAQ:FSLR), which had 26 funds with an aggregate of $183.82 million invested. As you can see, invested capital was low, and had decreased from $249.10 million from the previous quarter, while fund ownership was down from 27 funds that held stakes at the end of September. The capital decrease was again due to a decline of First Solar, Inc. (NASDAQ:FSLR)’s stock price, which was down by 33.95% for the fourth quarter (capital actually increased slightly when removing the fluctuation in shares). First Solar, Inc. (NASDAQ:FSLR) has suffered through lowered guidance, unmet estimates, and weakened sales on lower margins throughout the year, which has dampened investor enthusiasm somewhat.
Nonetheless, First Solar, Inc. (NASDAQ:FSLR) was considered a potential turnaround tech stock heading into 2015 after its disastrous 2014, and so far it’s more than lived up to that billing, gaining 36.92% year-to-date. Mike Masters’ Masters Capital Management was the top shareholder of First Solar, Inc. (NASDAQ:FSLR) among funds from our database heading into 2015, with 600,000 shares, while Cliff Asness’ AQR Capital Management held 511,300 shares.
Disclosure: None
