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Did Hedge Funds Make The Right Call On First Solar, Inc. (FSLR) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtFirst Solar, Inc. (NASDAQ:FSLR) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is First Solar, Inc. (NASDAQ:FSLR) a bargain? The best stock pickers were taking a pessimistic view. The number of long hedge fund positions shrunk by 2 lately. Our calculations also showed that FSLR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). FSLR was in 22 hedge funds’ portfolios at the end of the first quarter of 2020. There were 24 hedge funds in our database with FSLR holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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’ 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to take a peek at the new hedge fund action regarding First Solar, Inc. (NASDAQ:FSLR).

Hedge fund activity in First Solar, Inc. (NASDAQ:FSLR)

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the fourth quarter of 2019. By comparison, 23 hedge funds held shares or bullish call options in FSLR a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Lansdowne Partners was the largest shareholder of First Solar, Inc. (NASDAQ:FSLR), with a stake worth $75.4 million reported as of the end of September. Trailing Lansdowne Partners was Citadel Investment Group, which amassed a stake valued at $29.6 million. Masters Capital Management, Encompass Capital Advisors, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lansdowne Partners allocated the biggest weight to First Solar, Inc. (NASDAQ:FSLR), around 4.18% of its 13F portfolio. Trellus Management Company is also relatively very bullish on the stock, earmarking 2.13 percent of its 13F equity portfolio to FSLR.

Since First Solar, Inc. (NASDAQ:FSLR) has witnessed declining sentiment from the smart money, it’s safe to say that there exists a select few hedge funds that slashed their full holdings in the first quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dumped the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $4.7 million in stock. Till Bechtolsheimer’s fund, Arosa Capital Management, also sold off its stock, about $3.9 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to First Solar, Inc. (NASDAQ:FSLR). We will take a look at Landstar System, Inc. (NASDAQ:LSTR), Spire Inc. (NYSE:SR), National Oilwell Varco, Inc. (NYSE:NOV), and AppFolio Inc (NASDAQ:APPF). 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
LSTR 22 156653 -2
SR 13 40465 1
NOV 29 476345 -2
APPF 19 272296 3
Average 20.75 236440 0

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 $236 million. That figure was $151 million in FSLR’s case. National Oilwell Varco, Inc. (NYSE:NOV) is the most popular stock in this table. On the other hand Spire Inc. (NYSE:SR) is the least popular one with only 13 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on FSLR as the stock returned 37.3% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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