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Should You Buy Capstone Turbine Corporation (CPST)?

In this article you are going to find out whether hedge funds think Capstone Turbine Corporation (NASDAQ:CPST) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Capstone Turbine Corporation (NASDAQ:CPST) a buy here? Investors who are in the know are taking a bullish view. The number of long hedge fund positions went up by 1 in recent months. Our calculations also showed that CPST isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CPST was in 3 hedge funds’ portfolios at the end of the first quarter of 2020. There were 2 hedge funds in our database with CPST positions at the end of the previous quarter.

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 44 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Griffin CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Capstone Turbine Corporation (NASDAQ:CPST).

What have hedge funds been doing with Capstone Turbine Corporation (NASDAQ:CPST)?

Heading into the second quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CPST over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Capstone Turbine Corporation (NASDAQ:CPST), which was worth $0.3 million at the end of the third quarter. On the second spot was GMT Capital which amassed $0 million worth of shares. Citadel Investment Group was 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 GMT Capital allocated the biggest weight to Capstone Turbine Corporation (NASDAQ:CPST), around 0.0019% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.0003 percent of its 13F equity portfolio to CPST.

Now, key hedge funds were leading the bulls’ herd. GMT Capital, managed by Thomas E. Claugus, assembled the largest position in Capstone Turbine Corporation (NASDAQ:CPST). GMT Capital had $0 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0 million investment in the stock during the quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Capstone Turbine Corporation (NASDAQ:CPST) but similarly valued. We will take a look at Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN), Bonso Electronics International Inc. (NASDAQ:BNSO), eMagin Corporation (NYSE:EMAN), and NXT-ID Inc. (NASDAQ:NXTD). This group of stocks’ market values resemble CPST’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DFFN 4 560 1
BNSO 1 332 0
EMAN 1 57 -1
NXTD 2 867 0
Average 2 454 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 2 hedge funds with bullish positions and the average amount invested in these stocks was $0 million. That figure was $0 million in CPST’s case. Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN) is the most popular stock in this table. On the other hand Bonso Electronics International Inc. (NASDAQ:BNSO) is the least popular one with only 1 bullish hedge fund positions. Capstone Turbine Corporation (NASDAQ:CPST) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but still beat the market by 15.6 percentage points. Hedge funds were also right about betting on CPST as the stock returned 110% in Q2 (through May 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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