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Did Hedge Funds Drop The Ball On SunPower Corporation (SPWR) ?

“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards SunPower Corporation (NASDAQ:SPWR) and see how it was affected.

Is SunPower Corporation (NASDAQ:SPWR) a buy, sell, or hold? Money managers are becoming less confident. The number of bullish hedge fund positions retreated by 2 recently. Our calculations also showed that SPWR isn’t among the 30 most popular stocks among hedge funds. SPWR was in 8 hedge funds’ portfolios at the end of December. There were 10 hedge funds in our database with SPWR holdings 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 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 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.

Och-Ziff Capital Management

Let’s check out the new hedge fund action encompassing SunPower Corporation (NASDAQ:SPWR).

How are hedge funds trading SunPower Corporation (NASDAQ:SPWR)?

At Q4’s end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SPWR over the last 14 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SPWR_may2019

The largest stake in SunPower Corporation (NASDAQ:SPWR) was held by Impax Asset Management, which reported holding $20.3 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $1.5 million position. Other investors bullish on the company included OZ Management, Balyasny Asset Management, and D E Shaw.

Seeing as SunPower Corporation (NASDAQ:SPWR) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few fund managers that elected to cut their entire stakes heading into Q3. Intriguingly, Steve Cohen’s Point72 Asset Management dumped the largest stake of the 700 funds followed by Insider Monkey, worth an estimated $1.8 million in stock. Philip Hempleman’s fund, Ardsley Partners, also said goodbye to its stock, about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as SunPower Corporation (NASDAQ:SPWR) but similarly valued. These stocks are Jianpu Technology Inc. (NYSE:JT), Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH), Alder Biopharmaceuticals Inc (NASDAQ:ALDR), and Hanger, Inc. (NYSE:HNGR). All of these stocks’ market caps match SPWR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JT 5 27860 1
RUTH 17 50161 2
ALDR 15 207447 -1
HNGR 18 193919 1
Average 13.75 119847 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $24 million in SPWR’s case. Hanger, Inc. (NYSE:HNGR) is the most popular stock in this table. On the other hand Jianpu Technology Inc. (NYSE:JT) is the least popular one with only 5 bullish hedge fund positions. SunPower Corporation (NASDAQ:SPWR) 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 SPWR as the stock returned 50.5% and outperformed the market by an even larger margin.

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

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