While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding FuelCell Energy, Inc. (NASDAQ:FCEL).
Is FCEL a good stock to buy now? FuelCell Energy, Inc. (NASDAQ:FCEL) investors should pay attention to an increase in activity from the world’s largest hedge funds recently. FuelCell Energy, Inc. (NASDAQ:FCEL) was in 17 hedge funds’ portfolios at the end of September. The all time high for this statistic is 8. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 8 hedge funds in our database with FCEL holdings at the end of June. Our calculations also showed that FCEL 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.
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 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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. Now let’s take a look at the new hedge fund action encompassing FuelCell Energy, Inc. (NASDAQ:FCEL).
Do Hedge Funds Think FCEL Is A Good Stock To Buy Now?
At the end of September, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 113% from the previous quarter. On the other hand, there were a total of 3 hedge funds with a bullish position in FCEL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Sander Gerber’s Hudson Bay Capital Management has the number one position in FuelCell Energy, Inc. (NASDAQ:FCEL), worth close to $7.6 million, accounting for 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Jonathan Barrett and Paul Segal of Luminus Management, with a $7.1 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism include Anand Parekh’s Alyeska Investment Group, D. E. Shaw’s D E Shaw and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to FuelCell Energy, Inc. (NASDAQ:FCEL), around 1.63% of its 13F portfolio. Yaupon Capital is also relatively very bullish on the stock, earmarking 0.65 percent of its 13F equity portfolio to FCEL.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Hudson Bay Capital Management, managed by Sander Gerber, initiated the biggest position in FuelCell Energy, Inc. (NASDAQ:FCEL). Hudson Bay Capital Management had $7.6 million invested in the company at the end of the quarter. Jonathan Barrett and Paul Segal’s Luminus Management also initiated a $7.1 million position during the quarter. The following funds were also among the new FCEL investors: Anand Parekh’s Alyeska Investment Group, Israel Englander’s Millennium Management, and Stuart J. Zimmer’s Zimmer Partners.
Let’s now take a look at hedge fund activity in other stocks similar to FuelCell Energy, Inc. (NASDAQ:FCEL). We will take a look at Maxeon Solar Technologies, Ltd. (NASDAQ:MAXN), CarParts.com, Inc. (NASDAQ:PRTS), Great Southern Bancorp, Inc. (NASDAQ:GSBC), NGL Energy Partners LP (NYSE:NGL), Aprea Therapeutics, Inc. (NASDAQ:APRE), Berkshire Hills Bancorp, Inc. (NYSE:BHLB), and United Fire Group, Inc. (NASDAQ:UFCS). All of these stocks’ market caps match FCEL’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.4 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $35 million in FCEL’s case. CarParts.com, Inc. (NASDAQ:PRTS) is the most popular stock in this table. On the other hand NGL Energy Partners LP (NYSE:NGL) is the least popular one with only 2 bullish hedge fund positions. FuelCell Energy, Inc. (NASDAQ:FCEL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FCEL is 77.5. 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. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on FCEL as the stock returned 259.8% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.