Is AQN A Good Stock To Buy Now?

At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Algonquin Power & Utilities Corp. (NYSE:AQN) makes for a good investment right now.

Is AQN a good stock to buy now? Algonquin Power & Utilities Corp. (NYSE:AQN) investors should be aware of a decrease in support from the world’s most elite money managers lately. Algonquin Power & Utilities Corp. (NYSE:AQN) was in 11 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 16. Our calculations also showed that AQN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Rajiv Jain of GQG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind let’s take a gander at the key hedge fund action regarding Algonquin Power & Utilities Corp. (NYSE:AQN).

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

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in AQN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AQN A Good Stock To Buy?

More specifically, GQG Partners was the largest shareholder of Algonquin Power & Utilities Corp. (NYSE:AQN), with a stake worth $188.1 million reported as of the end of September. Trailing GQG Partners was Renaissance Technologies, which amassed a stake valued at $54.5 million. Ecofin Ltd, Two Sigma Advisors, and Heronetta Management 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 Heronetta Management allocated the biggest weight to Algonquin Power & Utilities Corp. (NYSE:AQN), around 5.09% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, designating 4.34 percent of its 13F equity portfolio to AQN.

Judging by the fact that Algonquin Power & Utilities Corp. (NYSE:AQN) has faced falling interest from the smart money, it’s easy to see that there were a few funds who were dropping their positions entirely in the third quarter. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $34.3 million in stock. Brian Olson, Baehyun Sung, and Jamie Waters’s fund, Blackstart Capital, also said goodbye to its stock, about $6.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Algonquin Power & Utilities Corp. (NYSE:AQN). We will take a look at Vail Resorts, Inc. (NYSE:MTN), Carlyle Group LP (NASDAQ:CG), Lyft, Inc. (NASDAQ:LYFT), Aspen Technology, Inc. (NASDAQ:AZPN), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Farfetch Limited (NYSE:FTCH), and GDS Holdings Limited (NASDAQ:GDS). This group of stocks’ market valuations match AQN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTN 30 892415 -7
CG 14 190841 6
LYFT 32 542062 2
AZPN 26 1094956 -2
KOF 6 332919 1
FTCH 40 1224948 3
GDS 47 2723060 4
Average 27.9 1000172 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $1000 million. That figure was $271 million in AQN’s case. GDS Holdings Limited (NASDAQ:GDS) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 6 bullish hedge fund positions. Algonquin Power & Utilities Corp. (NYSE:AQN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AQN is 29.7. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately AQN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AQN investors were disappointed as the stock returned 10.2% since the end of September (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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