Were Hedge Funds Right About Flocking Into First Solar, Inc. (FSLR) ?

Reymerlyn Martin

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.

Is First Solar, Inc. (NASDAQ:FSLR) a great investment now? Investors who are in the know are betting on the stock. The number of bullish hedge fund bets went up by 8 in recent months. Our calculations also showed that FSLR isn't among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Griffin
Ken Griffin

We're going to take a gander at the recent hedge fund action encompassing First Solar, Inc. (NASDAQ:FSLR).

How have hedgies been trading First Solar, Inc. (NASDAQ:FSLR)?

At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 57% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FSLR over the last 14 quarters. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

FSLR_apr2019
FSLR_apr2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Israel Englander's Millennium Management has the largest position in First Solar, Inc. (NASDAQ:FSLR), worth close to $87.7 million, accounting for 0.1% of its total 13F portfolio. The second largest stake is held by Park West Asset Management, led by Peter S. Park, holding a $78 million position; the fund has 3.9% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions comprise Ken Griffin's Citadel Investment Group, and Todd J. Kantor's Encompass Capital Advisors.

As industrywide interest jumped, key money managers were leading the bulls' herd. Park West Asset Management, managed by Peter S. Park, assembled the largest position in First Solar, Inc. (NASDAQ:FSLR). Park West Asset Management had $78 million invested in the company at the end of the quarter. Mike Masters's Masters Capital Management also made a $42.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Mike Masters's Masters Capital Management, Jos Shaver's Electron Capital Partners, and Steve Cohen's Point72 Asset Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as First Solar, Inc. (NASDAQ:FSLR) but similarly valued. We will take a look at GCI Liberty, Inc. (NASDAQ:GLIBA), Ashland Global Holdings Inc.. (NYSE:ASH), Universal Display Corporation (NASDAQ:OLED), and Brixmor Property Group Inc (NYSE:BRX). This group of stocks' market valuations match FSLR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLIBA,37,1382128,1 ASH,37,1143105,5 OLED,10,80618,-10 BRX,17,321828,-1 Average,25.25,731920,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $732 million. That figure was $353 million in FSLR's case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand Universal Display Corporation (NASDAQ:OLED) is the least popular one with only 10 bullish hedge fund positions. First Solar, Inc. (NASDAQ:FSLR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on FSLR as the stock returned 41.2% and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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