Is REGI A Good Stock To Buy According To Hedge Funds?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Renewable Energy Group Inc (NASDAQ:REGI).

Is REGI a good stock to buy? Money managers were taking a bullish view. The number of bullish hedge fund positions went up by 9 recently. Renewable Energy Group Inc (NASDAQ:REGI) was in 30 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 21. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that REGI 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). There were 21 hedge funds in our database with REGI holdings at the end of June.

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.

Philip Hempleman Ardsley Partners

Philip Hempleman of Ardsley Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Keeping this in mind let’s go over the new hedge fund action encompassing Renewable Energy Group Inc (NASDAQ:REGI).

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

At third quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in REGI 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.

Among these funds, Parsifal Capital Management held the most valuable stake in Renewable Energy Group Inc (NASDAQ:REGI), which was worth $29.4 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $29.3 million worth of shares. Point72 Asset Management, Millennium Management, and SIR Capital 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 Parsifal Capital Management allocated the biggest weight to Renewable Energy Group Inc (NASDAQ:REGI), around 5.25% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, earmarking 2.31 percent of its 13F equity portfolio to REGI.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, initiated the largest position in Renewable Energy Group Inc (NASDAQ:REGI). Point72 Asset Management had $11.2 million invested in the company at the end of the quarter. Vince Maddi and Shawn Brennan’s SIR Capital Management also initiated a $9.7 million position during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Philip Hempleman’s Ardsley Partners, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s go over hedge fund activity in other stocks similar to Renewable Energy Group Inc (NASDAQ:REGI). These stocks are Taro Pharmaceutical Industries Ltd. (NYSE:TARO), ESCO Technologies Inc. (NYSE:ESE), Upwork Inc. (NASDAQ:UPWK), First Majestic Silver Corp (NYSE:AG), Kennedy-Wilson Holdings Inc (NYSE:KW), Brady Corp (NYSE:BRC), and Moog Inc (NYSE:MOG). This group of stocks’ market caps are similar to REGI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TARO 9 59707 -1
ESE 14 74701 7
UPWK 27 294152 2
AG 14 52631 0
KW 18 346851 4
BRC 19 139850 2
MOG 19 111492 -4
Average 17.1 154198 1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.1 hedge funds with bullish positions and the average amount invested in these stocks was $154 million. That figure was $140 million in REGI’s case. Upwork Inc. (NASDAQ:UPWK) is the most popular stock in this table. On the other hand Taro Pharmaceutical Industries Ltd. (NYSE:TARO) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Renewable Energy Group Inc (NASDAQ:REGI) is more popular among hedge funds. Our overall hedge fund sentiment score for REGI is 90. 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 returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on REGI as the stock returned 41.5% since the end of September (through 12/18) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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