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Were Hedge Funds Right About Warming Up To SunPower Corporation (SPWR)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in SunPower Corporation (NASDAQ:SPWR)? The smart money sentiment can provide an answer to this question.

SunPower Corporation (NASDAQ:SPWR) has seen an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that SPWR isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

SPWR_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the key hedge fund action regarding SunPower Corporation (NASDAQ:SPWR).

Hedge fund activity in SunPower Corporation (NASDAQ:SPWR)

At Q2’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SPWR over the last 16 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Matthew Hulsizer PEAK6 Capital

More specifically, Impax Asset Management was the largest shareholder of SunPower Corporation (NASDAQ:SPWR), with a stake worth $38.6 million reported as of the end of March. Trailing Impax Asset Management was Millennium Management, which amassed a stake valued at $13.5 million. D E Shaw, Citadel Investment Group, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into SunPower Corporation (NASDAQ:SPWR) headfirst. PEAK6 Capital Management, managed by Matthew Hulsizer, assembled the largest call position in SunPower Corporation (NASDAQ:SPWR). PEAK6 Capital Management had $0.8 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Richard Driehaus’s Driehaus Capital, and Frank Slattery’s Symmetry Peak Management.

Let’s go over hedge fund activity in other stocks similar to SunPower Corporation (NASDAQ:SPWR). We will take a look at U.S. Physical Therapy, Inc. (NYSE:USPH), Electronics For Imaging, Inc. (NASDAQ:EFII), Coherus Biosciences Inc (NASDAQ:CHRS), and Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL). This group of stocks’ market valuations are similar to SPWR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
USPH 11 68548 -2
EFII 15 152934 0
CHRS 27 263266 0
MDGL 12 360275 -7
Average 16.25 211256 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $211 million. That figure was $72 million in SPWR’s case. Coherus Biosciences Inc (NASDAQ:CHRS) is the most popular stock in this table. On the other hand U.S. Physical Therapy, Inc. (NYSE:USPH) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks SunPower Corporation (NASDAQ:SPWR) is even less popular than USPH. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SPWR, though not to the same extent, as the stock returned 2.6% during the third quarter and outperformed the market as well.

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

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