Alternative Energy Stocks Smart Money Loves

Alternative energy stocks need to reside every long-term-oriented investor’s portfolio for two primary reasons. First of all, alternative energy represents the fastest-growing segment within the entire energy industry. Second of all, renewable energy facilities provide stable cash flow streams that will enable the companies operating them to return a significant amount of capital to shareholders in the form of dividends. As alternative energy companies are still in the growing phase, the much-anticipated hefty dividend receipts are yet to come.

Public opinion and government support have been the main drivers of growth for the solar energy industry, with solar energy anticipated to become the fundamental source of electric power in the future. Given that global demand for electricity continues to growth, renewable energy stocks represent attractive long-term picks for investors regardless of the current economic climate. For that reason, Insider Monkey compiled a list of alternative energy stock favored by the hedge funds followed by our team, so let’s have a look at the change in hedge fund sentiment towards five high-potential renewable energy stocks.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).

#5. Trina Solar Limited (ADR) (NYSE:TSL)

– Number of Hedge Fund Shareholders (as of June 30): 15

– Total Value of Hedge Funds’ Holdings (as of June 30): $153.77 Million

Trina Solar Limited (ADR) (NYSE:TSL) received more attention from the hedge funds followed by Insider Monkey during the second quarter, as the number of funds invested in the company rose to 15 from 12 quarter-over-quarter. Nevertheless, the overall value of those funds’ equity investments in Trina Solar fell by nearly 23% quarter-on-quarter to $153.77 million, mainly reflecting a 22% drop in the value of Trina Solar’s American Depositary Shares suffered during the June quarter. The China-based large-scale integrated solar power products manufacturer and solar system developer has seen its market capitalization decline by 4% since the start of the year. In early August, Trina Solar Limited, China’s largest solar panel manufacturer, announced an agreement to be acquired by its founding Chairman and a consortium of investors in a $1.1 billion all-cash transaction. The move to go private is expected to be completed in the first quarter of 2017. Kerr Neilson’s Platinum Asset Management reported ownership of 5.84 million ADSs of Trina Solar Limited (ADR) (NYSE:TSL) through the latest round of 13Fs.

#4. Canadian Solar Inc. (NASDAQ:CSIQ)

– Number of Hedge Fund Shareholders (as of June 30): 16

– Total Value of Hedge Funds’ Holdings (as of June 30): $69.61 Million

Canadian Solar Inc. (NASDAQ:CSIQ) slightly fell out of favor with the elite segment of the hedge fund industry monitored by Insider Monkey in the June quarter, given that the number of funds with long positions in the company declined to 16 from 17 quarter-on-quarter. Similarly, the aggregate value of those long positions plunged by 32% quarter-over-quarter to $69.61 million, primarily due to a drop of almost 22% in the value of Canadian Solar shares. The 16 hedge funds invested in Canadian Solar amassed approximately 8% of the company’s total number of outstanding shares. The Canadian solar power company has lost 54% of its market capitalization since the beginning of the year. In late August, analysts at Barclays downgraded Canadian Solar to ‘Equal Weight’ from ‘Overweight’ and trimmed their price target on the stock to $14 from $24, citing the “broader (and unavoidable) issue of unintended consequences of government policy distorting the solar supply/demand relationship on a global scale.” For instance, the Chinese government recently announced reductions in subsidies for solar farms commissioned after June 30. Ken Hahn’s Quentec Asset Management upped its position in Canadian Solar Inc. (NASDAQ:CSIQ) by 39% during the June quarter to 1.03 million shares.

#3. SunPower Corporation (NASDAQ:SPWR)

– Number of Hedge Fund Shareholders (as of June 30): 19

– Total Value of Hedge Funds’ Holdings (as of June 30): $144.79 Million

SunPower Corporation (NASDAQ:SPWR) was a hedge fund darling during the April-to-June quarter, as the number of funds from our system with stakes in the company jumped to 19 from 15 quarter-on-quarter. Despite the increase in the number of hedge fund shareholders, the overall value of those stakes dropped by around 12% quarter-over-quarter to $144.79 million. The decrease was mainly attributable to a 30% decline in the value of SunPower shares. The shares of the global energy company that delivers complete solar solutions to residential, commercial and power plant customers are down a disturbing 65% since the start of 2016. SunPower shares recently took another blow after the company issued a disappointing third-quarter and full-year outlook, with some analysts questioning the credibility of the company’s management. Long story short, the company cut its deployment guidance on an anticipated two-year downtrend for its power plant division. Bernard Lambilliotte’s Ecofin Ltd was the owner of 1.60 million shares of SunPower Corporation (NASDAQ:SPWR) at the end of June.

#2. SolarCity Corp (NASDAQ:SCTY)

– Number of Hedge Fund Shareholders (as of June 30): 26

– Total Value of Hedge Funds’ Holdings (as of June 30): $140.19 Million

The number of smart money investors from our system with equity investments in SolarCity Corp (NASDAQ:SCTY) increased to 26 from 23 during the second quarter, while the value of those investments rose by 33% quarter-over-quarter to $140.19 million despite the stock returning a negative 2% during the June quarter. In late July, electric car maker Tesla Motors Inc. (NASDAQ:TSLA) agreed to acquire the installer of residential and commercial solar energy systems in an all-stock deal valued at $2.6 billion. Tesla Motors recently won U.S. antitrust approval to buy solar panel installer SolarCity, yet another step towards achieving Elon Musk’s goal of creating a carbon-free energy and transportation company. However, both Tesla Motors and SolarCity are currently facing financial crunches as the two companies move closer to completing the controversial combination. Considering Tesla’s extremely high cash burn rate, acquiring the money-losing business of SolarCity does not seem to be a great idea. Kenneth Tropin’s Graham Capital Management reported owning 16.50 million shares of SolarCity Corp (NASDAQ:SCTY) in its latest 13F.

#1. First Solar Inc. (NASDAQ:FSLR)

– Number of Hedge Fund Shareholders (as of June 30): 30

– Total Value of Hedge Funds’ Holdings (as of June 30): $261.52 Million

There were 30 hedge fund firms tracked by our team with long positions in First Solar Inc. (NASDAQ:FSLR) at the end of the April-to-June period, as compared to 31 recorded at the end of the previous quarter. The overall value of those positions plunged by a disturbing 78% quarter-over-quarter to $261.52 million, partially due to a 29% decline in the value of First Solar shares. The 30 hedge funds invested in First Solar hoarded up around 5% of the company’s outstanding common stock. The global provider of comprehensive photovoltaic solar energy solutions has seen its market value plummet by 42% since the beginning of January. Just recently, analysts at Argus downgraded the rating on First Solar to ‘Hold’ from ‘Buy’, citing concerns around the company’s declining project backlog and strong price competition. Nevertheless, Argus analysts continue to view First solar “as the best-position company in the solar industry based on three factors”, one of which represents “its ability to remain profitable even as peers have been hurt by oversupplied markets and a lack of pricing power.” David Harding’s Winton Capital Management owns 263,118 shares of First Solar Inc. (NASDAQ:FSLR) as of June 30.

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