Should I Avoid Sunnova Energy International Inc. (NOVA)?

Is Sunnova Energy International Inc. (NYSE:NOVA) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Sunnova Energy International Inc. (NYSE:NOVA) was in 25 hedge funds’ portfolios at the end of June. The all time high for this statistic is 32. NOVA shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. There were 26 hedge funds in our database with NOVA holdings at the end of March. Our calculations also showed that NOVA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

According to most investors, hedge funds are perceived as underperforming, outdated financial tools of yesteryear. While there are over 8000 funds trading today, Our researchers choose to focus on the top tier of this group, around 850 funds. It is estimated that this group of investors handle bulk of the smart money’s total capital, and by following their highest performing picks, Insider Monkey has come up with numerous investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s take a peek at the key hedge fund action encompassing Sunnova Energy International Inc. (NYSE:NOVA).

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

At second quarter’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the first quarter of 2020. By comparison, 10 hedge funds held shares or bullish call options in NOVA a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Electron Capital Partners was the largest shareholder of Sunnova Energy International Inc. (NYSE:NOVA), with a stake worth $67.2 million reported as of the end of June. Trailing Electron Capital Partners was Sylebra Capital Management, which amassed a stake valued at $40.2 million. Citadel Investment Group, Encompass Capital Advisors, and Moore Global Investments 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 Electron Capital Partners allocated the biggest weight to Sunnova Energy International Inc. (NYSE:NOVA), around 3.25% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, earmarking 2.03 percent of its 13F equity portfolio to NOVA.

Judging by the fact that Sunnova Energy International Inc. (NYSE:NOVA) has faced declining sentiment from the smart money, it’s easy to see that there was a specific group of hedge funds that elected to cut their full holdings in the second quarter. Interestingly, Glen Kacher’s Light Street Capital said goodbye to the biggest position of all the hedgies watched by Insider Monkey, totaling close to $37.2 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund said goodbye to about $23.3 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds in the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sunnova Energy International Inc. (NYSE:NOVA) but similarly valued. These stocks are Alarm.com Holdings Inc (NASDAQ:ALRM), Altra Industrial Motion Corp. (NASDAQ:AIMC), Matador Resources Co (NYSE:MTDR), APi Group Corporation (NYSE:APG), Hudson Pacific Properties Inc (NYSE:HPP), Sanderson Farms, Inc. (NASDAQ:SAFM), and PNM Resources, Inc. (NYSE:PNM). This group of stocks’ market caps resemble NOVA’s market cap.

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As you can see these stocks had an average of 22.6 hedge funds with bullish positions and the average amount invested in these stocks was $428 million. That figure was $294 million in NOVA’s case. APi Group Corporation (NYSE:APG) is the most popular stock in this table. On the other hand Altra Industrial Motion Corp. (NASDAQ:AIMC) is the least popular one with only 6 bullish hedge fund positions. Sunnova Energy International Inc. (NYSE:NOVA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NOVA is 61.4. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately NOVA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on NOVA were disappointed as the stock returned 3.1% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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