Hedge Funds Are Coming Back To Renewable Energy Group Inc (REGI)

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Renewable Energy Group Inc (NASDAQ:REGI) to find out whether there were any major changes in hedge funds’ views.

Is Renewable Energy Group Inc (NASDAQ:REGI) the right pick for your portfolio? Prominent investors were becoming more confident. The number of long hedge fund bets rose by 5 lately. Renewable Energy Group Inc (NASDAQ:REGI) was in 21 hedge funds’ portfolios at the end of March. The all time high for this statistic is 30. Our calculations also showed that REGI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 16 hedge funds in our database with REGI positions at the end of the fourth 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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

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At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s analyze the latest hedge fund action encompassing Renewable Energy Group Inc (NASDAQ:REGI).

Do Hedge Funds Think REGI Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards REGI over the last 23 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is REGI A Good Stock To Buy?

Among these funds, Schonfeld Strategic Advisors held the most valuable stake in Renewable Energy Group Inc (NASDAQ:REGI), which was worth $33.1 million at the end of the fourth quarter. On the second spot was Point72 Asset Management which amassed $28.7 million worth of shares. Adage Capital Management, CaaS Capital, 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 Fairpointe Capital allocated the biggest weight to Renewable Energy Group Inc (NASDAQ:REGI), around 1.99% of its 13F portfolio. Covalis Capital is also relatively very bullish on the stock, setting aside 1.62 percent of its 13F equity portfolio to REGI.

Now, key money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, created the most outsized position in Renewable Energy Group Inc (NASDAQ:REGI). Point72 Asset Management had $28.7 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also initiated a $21.3 million position during the quarter. The other funds with brand new REGI positions are Frank Fu’s CaaS Capital, Michael Gelband’s ExodusPoint Capital, and Zilvinas Mecelis’s Covalis Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Renewable Energy Group Inc (NASDAQ:REGI) but similarly valued. We will take a look at Sogou Inc. (NYSE:SOGO), Live Oak Bancshares Inc (NASDAQ:LOB), Yelp Inc (NYSE:YELP), TreeHouse Foods Inc. (NYSE:THS), Papa John’s International, Inc. (NASDAQ:PZZA), Microvision, Inc. (NASDAQ:MVIS), and The Simply Good Foods Company (NASDAQ:SMPL). This group of stocks’ market values are closest to REGI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SOGO 16 108357 0
LOB 10 113600 -7
YELP 20 513325 -11
THS 27 368885 3
PZZA 32 355821 0
MVIS 12 21630 6
SMPL 22 177708 6
Average 19.9 237047 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $163 million in REGI’s case. Papa John’s International, Inc. (NASDAQ:PZZA) is the most popular stock in this table. On the other hand Live Oak Bancshares Inc (NASDAQ:LOB) is the least popular one with only 10 bullish hedge fund positions. Renewable Energy Group Inc (NASDAQ:REGI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for REGI is 56. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately REGI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on REGI were disappointed as the stock returned -2.4% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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