Is Canadian Solar Inc. (CSIQ) Going to Burn These Hedge Funds?

The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 24.4% through September 30th, vs. a gain of 20.4% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Canadian Solar Inc. (NASDAQ:CSIQ), and what that likely means for the prospects of the company and its stock.

Is Canadian Solar Inc. (NASDAQ:CSIQ) undervalued? Investors who are in the know are in a bullish mood. The number of bullish hedge fund bets increased by 2 lately. Our calculations also showed that CSIQ isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Didric Cederholm Lion Point Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the latest hedge fund action surrounding Canadian Solar Inc. (NASDAQ:CSIQ).

What does smart money think about Canadian Solar Inc. (NASDAQ:CSIQ)?

At Q2’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in CSIQ a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

No of Hedge Funds with CSIQ Positions

More specifically, Lion Point was the largest shareholder of Canadian Solar Inc. (NASDAQ:CSIQ), with a stake worth $84.2 million reported as of the end of March. Trailing Lion Point was Electron Capital Partners, which amassed a stake valued at $22.7 million. Luminus Management, Two Sigma Advisors, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, key money managers were leading the bulls’ herd. Electron Capital Partners, managed by Jos Shaver, established the biggest position in Canadian Solar Inc. (NASDAQ:CSIQ). Electron Capital Partners had $22.7 million invested in the company at the end of the quarter. Ernest Chow and Jonathan Howe’s Sensato Capital Management also initiated a $0.9 million position during the quarter. The following funds were also among the new CSIQ investors: Israel Englander’s Millennium Management, Guy Shahar’s DSAM Partners, and Steve Cohen’s Point72 Asset Management.

Let’s check out hedge fund activity in other stocks similar to Canadian Solar Inc. (NASDAQ:CSIQ). These stocks are Aimmune Therapeutics Inc (NASDAQ:AIMT), EnPro Industries, Inc. (NYSE:NPO), Fresh Del Monte Produce Inc (NYSE:FDP), and Hertz Global Holdings, Inc. (NYSE:HTZ). This group of stocks’ market values are similar to CSIQ’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AIMT 13 182284 -2
NPO 11 122535 -6
FDP 11 42120 -3
HTZ 30 916881 4
Average 16.25 315955 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $316 million. That figure was $142 million in CSIQ’s case. Hertz Global Holdings, Inc. (NYSE:HTZ) is the most popular stock in this table. On the other hand EnPro Industries, Inc. (NYSE:NPO) is the least popular one with only 11 bullish hedge fund positions. Canadian Solar Inc. (NASDAQ:CSIQ) is not the least popular stock in this group but hedge fund interest is still below average. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CSIQ wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CSIQ investors were disappointed as the stock returned -13.5% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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