Editor’s Note: Related tickers: First Solar, Inc. (NASDAQ:FSLR), SunPower Corporation (NASDAQ:SPWR), GT Advanced Technologies Inc (NASDAQ:GTAT), Applied Materials, Inc. (NASDAQ:AMAT), MEMC Electronic Materials, Inc. (NYSE:WFR), Trina Solar Limited (ADR) (NYSE:TSL)
Empirical research has found that it has been possible for piggyback buyers to beat the market by 18 percentage points a year while following hedge funds’ best picks; learn how they did it here. It’s for this reason that we’re going to take a look at hedgies’ interest in one particular segment of the energy marketplace.
Energy is one of the most important topics in the world economy at the moment, particularly from a long-term standpoint. As renewables continue to gain greater support from both sides of the political aisle in the U.S. (and in many developed and developing nations abroad), there’s inevitably a push toward investment opportunities in this space. Publicly-traded solar energy companies are in particular focus, and names like First Solar, Inc. (NASDAQ:FSLR), SunPower Corporation (NASDAQ:SPWR) and GT Advanced Technologies Inc (NASDAQ:GTAT) have been brought to the center of Mr. Market’s attention.
A recent acquisition
Speaking of First Solar, Inc. (NASDAQ:FSLR) specifically, it is important to mention that in its recent acquisition of the Japan-based TetraSun, there exists a key opportunity for expansion that couldn’t exist elsewhere. In Japan in particular, limited land availability reduces the space that solar providers have for PV plants, and TetraSun, which specializes in rooftop systems, should be a good way for First Solar, Inc. (NASDAQ:FSLR) to expand vertically, rather than horizontally–literally speaking.
A new announcement
GT Advanced Technologies Inc (NASDAQ:GTAT) also doing well amid its announcement that new equipment developments will raise the efficiency of its crystalline cells by 4% to over 22%. A total of 16 funds held positions in GT at the end of the last filing period, and Eric Sprott’s Sprott Asset Management, Platinum Asset Management managed by Kerr Neilson, and Paul Tudor Jones‘s Tudor Investment Corp, are the cream of the crop.
In addition to First Solar, Inc. (NASDAQ:FSLR) and GT Advanced Technologies Inc (NASDAQ:GTAT), hedge funds are positioning themselves in a few other solar stocks. We almost always rank equities by hedge fund sentiment, but in an industry as volatile as solar, it’s especially crucial to see which players are loved by the smart money, because there may be some undervalued gems set to pop in the short- to intermediate-term.
1. Applied Materials, Inc. (NASDAQ:AMAT)
At the end of the fourth quarter of last year, 24 of the hedge funds we track were long on Applied Materials, Inc. (NASDAQ:AMAT), a decrease of three from the previous quarter. Interestingly, shares have popped more than 26% since the start of 2013, rewarding those who’ve stuck with this stock, including Sandy Nairn’s Edinburgh Partners, Charles De Vaulx’s International Value Advisers, and Martin Whitman’s Third Avenue Management.
Applied Materials, Inc. (NASDAQ:AMAT) trades a forward P/E of 13.8 and a modest 2.4 times its book value; both are fairly attractive given some of the higher valuations seen in the solar space. It’s simplistic to assume that hedgies are in this stock for its value only, though, as Wall Street analysts’ average EPS forecast on Applied Materials expects 70% bottom line growth next year before settling into a 9-10% annual average over the next half-decade. That’s what we call a “growth at a reasonable price” play.
2. First Solar
Discussing First Solar, Inc. (NASDAQ:FSLR) some more, it’s interesting to note that hedge fund interest declined slightly from 19 to 18 funds between Q3 and Q4 of 2012, though like the aforementioned Applied Materials, Inc. (NASDAQ:AMAT), the bulls have been rewarded, and then some. Year-to-date, First Solar’s stock has gained 48.4%, much to the delight of Coatue Management, managed by Philippe Laffont, Tiger Global Management, and John Thaler‘s JAT Capital.
3 (tie). GT Advanced Technologies
Sixteen hedgies were bullish on GT Advanced Technologies Inc (NASDAQ:GTAT) in the fourth quarter, down from 18 in Q3, and shares have returned 28.7% since the start of 2013. Nelson and Tudor Jones are a couple of the names involved here, as we discussed in the intro.
3 (tie). MEMC Electronic Materials, Inc. (NYSE:WFR)
MEMC Electronic Materials, Inc. (NYSE:WFR) was another hedge fund solar favorite, with 16 invested, like GT. Unlike GT, though, this was the same number of managers invested from Q3, and shares have performed even better year-to-date, up 65.4%. This has rewarded Rishi Bajaj, Toby Symonds, & Steve Tesoriere’s Altai Capital, Clint Carlson’s Carlson Capital, and Joseph A. Jolson’s Harvest Capital Strategies quite well, and with a sales multiple trading at a 52% discount to parity, there’s obviously some value still here. On the Street, MEMC Electronic Materials, Inc. (NYSE:WFR)’s EPS forecast is better than even Applied Materials, Inc. (NASDAQ:AMAT), settling in the mid-12% range, so this looks like another GARP play that’s not exactly common in solar.
5 (tie). Trina Solar Limited (ADR) (NYSE:TSL)
Nine hedge funds are bullish on Trina, up by one since Q3. Shares have bounced a modest 14% year-to-date, rewarding investors like Kerr Neilson and John A. Levin, two of the top 450 fund managers we track.
5 (tie). SunPower Corporation
Like Trina, nine hedge funds are invested in SunPower Corporation (NASDAQ:SPWR), down from the 13 that held long positions one quarter earlier. Interestingly, managers that sold out have got to be kicking themselves, as shares of the vertically integrated solar company have returned over 130%. Shares were recently upgraded to “Outperform” from “Neutral” at Baird, particularly due to a “growing leasing business, cost reduction initiatives and technology innovations.”
Some of the top hedgies invested here are Chuck Royce’s Royce & Associates and John A. Levin, and like MEMC Electronic Materials, Inc. (NYSE:WFR), shares still sport a discount to sales value parity—one signal value investors can’t ignore. While hedge fund interest in SunPower Corporation (NASDAQ:SPWR) isn’t booming by any means, it’s important to note that of the top four long positions in the stock last quarter, all four were upping their stakes by an average of 1,100%.
Final thoughts
While there are plenty of metrics available for the average investor to use when analyzing First Solar, Inc. (NASDAQ:FSLR) and the rest of the stocks mentioned here, one that is the most crucial is hedge fund sentiment, due to the fact that significant outperformance is possible if you know where to look. Interest in solar stocks isn’t mind-blowing by any means, but those who are bullish on this space hold a very high conviction in its future—a trait that most solar investors likely share. It’s for this very reason why these picks are important to watch, especially as first quarter filings come in later this month.
Disclosure: none
