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Hedge Funds Are Nibbling On TerraForm Power Inc (TERP)

In this article we will take a look at whether hedge funds think TerraForm Power Inc (NASDAQ:TERP) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is TerraForm Power Inc (NASDAQ:TERP) a buy here? Money managers are in a bullish mood. The number of long hedge fund bets moved up by 2 lately. Our calculations also showed that TERP 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). TERP was in 17 hedge funds’ portfolios at the end of March. There were 15 hedge funds in our database with TERP positions 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Alex Litowitz Magnetar Capital

Alex Litowitz of Magnetar Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the key hedge fund action surrounding TerraForm Power Inc (NASDAQ:TERP).

How have hedgies been trading TerraForm Power Inc (NASDAQ:TERP)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TERP over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in TerraForm Power Inc (NASDAQ:TERP), which was worth $139.2 million at the end of the third quarter. On the second spot was Magnetar Capital which amassed $17.2 million worth of shares. Alpine Associates, D E Shaw, and Arrowstreet Capital 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 Ecofin Ltd allocated the biggest weight to TerraForm Power Inc (NASDAQ:TERP), around 6.36% of its 13F portfolio. Alpine Associates is also relatively very bullish on the stock, dishing out 0.68 percent of its 13F equity portfolio to TERP.

As aggregate interest increased, some big names were leading the bulls’ herd. Magnetar Capital, managed by Alec Litowitz and Ross Laser, initiated the biggest position in TerraForm Power Inc (NASDAQ:TERP). Magnetar Capital had $17.2 million invested in the company at the end of the quarter. Robert Emil Zoellner’s Alpine Associates also initiated a $17.1 million position during the quarter. The other funds with brand new TERP positions are Mario Gabelli’s GAMCO Investors, Michael Gelband’s ExodusPoint Capital, and Farnum Brown and Adam Seitchik’s Arjuna Capital.

Let’s go over hedge fund activity in other stocks similar to TerraForm Power Inc (NASDAQ:TERP). These stocks are Graphic Packaging Holding Company (NYSE:GPK), Neogen Corporation (NASDAQ:NEOG), Leggett & Platt, Inc. (NYSE:LEG), and Adaptive Biotechnologies Corporation (NASDAQ:ADPT). All of these stocks’ market caps resemble TERP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GPK 33 340462 -6
NEOG 16 33336 0
LEG 25 70786 -2
ADPT 18 1592264 -4
Average 23 509212 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $509 million. That figure was $218 million in TERP’s case. Graphic Packaging Holding Company (NYSE:GPK) is the most popular stock in this table. On the other hand Neogen Corporation (NASDAQ:NEOG) is the least popular one with only 16 bullish hedge fund positions. TerraForm Power Inc (NASDAQ:TERP) is not the least popular stock in this group but hedge fund interest is still below 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 13.4% in 2020 through June 22nd but beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on TERP, though not to the same extent, as the stock returned 22.4% during the second quarter and outperformed the market.

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