Is SLRC A Good Stock To Buy Now?

After several tireless days we have finished crunching the numbers from nearly 817 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Solar Capital Ltd. (NASDAQ:SLRC).

Is SLRC a good stock to buy now? Solar Capital Ltd. (NASDAQ:SLRC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that SLRC 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). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Federal Agricultural Mortgage Corp. (NYSE:AGM), Hollysys Automation Technologies Ltd (NASDAQ:HOLI), and IES Holdings, Inc. (NASDAQ:IESC) to gather more data points.

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 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.

Charles Clough of Clough Capital 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. Now let’s take a look at the key hedge fund action encompassing Solar Capital Ltd. (NASDAQ:SLRC).

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

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SLRC over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SLRC A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Brian Ashford-Russell and Tim Woolley’s Polar Capital has the number one position in Solar Capital Ltd. (NASDAQ:SLRC), worth close to $3.7 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is McKinley Capital Management, managed by Robert B. Gillam, which holds a $3.6 million position; 0.3% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism comprise John Overdeck and David Siegel’s Two Sigma Advisors, Daniel Johnson’s Gillson Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Coe Capital Management allocated the biggest weight to Solar Capital Ltd. (NASDAQ:SLRC), around 0.82% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, dishing out 0.43 percent of its 13F equity portfolio to SLRC.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Clough Capital Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Birch Grove Capital).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Solar Capital Ltd. (NASDAQ:SLRC) but similarly valued. We will take a look at Federal Agricultural Mortgage Corp. (NYSE:AGM), Hollysys Automation Technologies Ltd (NASDAQ:HOLI), IES Holdings, Inc. (NASDAQ:IESC), UP Fintech Holding Limited (NASDAQ:TIGR), Quotient Technology Inc (NYSE:QUOT), Eastman Kodak Co. (NYSE:KODK), and Immatics N.V. (NASDAQ:IMTX). This group of stocks’ market values resemble SLRC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AGM 11 13712 3
HOLI 13 75165 3
IESC 9 412002 1
TIGR 6 5195 2
QUOT 15 304245 2
KODK 15 53830 12
IMTX 22 161638 22
Average 13 146541 6.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $21 million in SLRC’s case. Immatics N.V. (NASDAQ:IMTX) is the most popular stock in this table. On the other hand UP Fintech Holding Limited (NASDAQ:TIGR) is the least popular one with only 6 bullish hedge fund positions. Solar Capital Ltd. (NASDAQ:SLRC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SLRC is 46.3. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on SLRC as the stock returned 11.9% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.

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