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Is Enphase Energy Inc (ENPH) Going to Burn These Hedge Funds?

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The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Enphase Energy Inc (NASDAQ:ENPH).

Enphase Energy Inc (NASDAQ:ENPH) has experienced a decrease in hedge fund sentiment of late. Enphase Energy Inc (NASDAQ:ENPH) was in 44 hedge funds' portfolios at the end of June. The all time high for this statistic is 49. There were 49 hedge funds in our database with ENPH positions at the end of the first quarter. Our calculations also showed that ENPH isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Clint Carlson of Carlson Capital

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 we're going to take a glance at the recent hedge fund action surrounding Enphase Energy Inc (NASDAQ:ENPH).

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

At the end of the second quarter, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 40 hedge funds with a bullish position in ENPH a year ago. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is ENPH A Good Stock To Buy?
Is ENPH A Good Stock To Buy?

Among these funds, Citadel Investment Group held the most valuable stake in Enphase Energy Inc (NASDAQ:ENPH), which was worth $223.2 million at the end of the second quarter. On the second spot was Sylebra Capital Management which amassed $90.5 million worth of shares. Point State Capital, Greenvale Capital, and Encompass Capital Advisors 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 Greenvale Capital allocated the biggest weight to Enphase Energy Inc (NASDAQ:ENPH), around 8.61% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, setting aside 8.17 percent of its 13F equity portfolio to ENPH.

Judging by the fact that Enphase Energy Inc (NASDAQ:ENPH) has experienced falling interest from the smart money, we can see that there was a specific group of funds that decided to sell off their entire stakes heading into Q3. Interestingly, Jos Shaver's Electron Capital Partners cut the biggest investment of the "upper crust" of funds tracked by Insider Monkey, comprising close to $31.1 million in stock. Steve Cohen's fund, Point72 Asset Management, also dropped its stock, about $31.1 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 5 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to Enphase Energy Inc (NASDAQ:ENPH). These stocks are Royalty Pharma Plc (NASDAQ:RPRX), Credit Suisse Group AG (NYSE:CS), ONEOK, Inc. (NYSE:OKE), Yandex NV (NASDAQ:YNDX), CDW Corporation (NASDAQ:CDW), Ryanair Holdings plc (NASDAQ:RYAAY), and Fresenius Medical Care AG & Co. (NYSE:FMS). All of these stocks' market caps match ENPH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RPRX,20,1557037,-6 CS,10,136568,-3 OKE,26,178712,6 YNDX,31,1361733,2 CDW,27,1760880,-3 RYAAY,15,456068,1 FMS,5,5127,-7 Average,19.1,779446,-1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $779 million. That figure was $724 million in ENPH's case. Yandex NV (NASDAQ:YNDX) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. (NYSE:FMS) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Enphase Energy Inc (NASDAQ:ENPH) is more popular among hedge funds. Our overall hedge fund sentiment score for ENPH is 76.9. 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 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 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Unfortunately ENPH wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ENPH were disappointed as the stock returned -15.4% since the end of the second quarter (through 10/1) 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 most of these stocks already outperformed the market since 2019.

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