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Hedge Funds Dumped First Solar, Inc. (FSLR) At The Right Time

Abigail Fisher

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the fourth quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of First Solar, Inc. (NASDAQ:FSLR) based on that data.

Is First Solar, Inc. (NASDAQ:FSLR) an outstanding stock to buy now? Prominent investors are becoming less hopeful. The number of long hedge fund bets shrunk by 8 recently. Our calculations also showed that FSLR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_728376" align="aligncenter" width="399"] Jonathan Barrett of Luminus Management[/caption]

Jonathan Barrett Luminus Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind we're going to take a look at the latest hedge fund action surrounding First Solar, Inc. (NASDAQ:FSLR).

How have hedgies been trading First Solar, Inc. (NASDAQ:FSLR)?

At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FSLR over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in First Solar, Inc. (NASDAQ:FSLR) was held by Lansdowne Partners, which reported holding $37.4 million worth of stock at the end of September. It was followed by Luminus Management with a $31.2 million position. Other investors bullish on the company included Citadel Investment Group, Masters Capital Management, and Encompass Capital Advisors. In terms of the portfolio weights assigned to each position Masters Capital Management allocated the biggest weight to First Solar, Inc. (NASDAQ:FSLR), around 1.52% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, earmarking 1.3 percent of its 13F equity portfolio to FSLR.

Judging by the fact that First Solar, Inc. (NASDAQ:FSLR) has experienced declining sentiment from the aggregate hedge fund industry, it's safe to say that there were a few hedgies that decided to sell off their positions entirely by the end of the third quarter. At the top of the heap, Ken Griffin's Citadel Investment Group cut the biggest position of all the hedgies watched by Insider Monkey, worth an estimated $43.8 million in call options, and Mike Masters's Masters Capital Management was right behind this move, as the fund dumped about $40.6 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 8 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as First Solar, Inc. (NASDAQ:FSLR) but similarly valued. These stocks are Gildan Activewear Inc (NYSE:GIL), Companhia Brasileira de Distribuicao (NYSE:CBD), Globus Medical Inc (NYSE:GMED), and Casey's General Stores, Inc. (NASDAQ:CASY). All of these stocks' market caps are similar to FSLR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GIL,22,430332,2 CBD,9,45263,-2 GMED,29,256883,5 CASY,22,142114,4 Average,20.5,218648,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $219 million. That figure was $140 million in FSLR's case. Globus Medical Inc (NYSE:GMED) is the most popular stock in this table. On the other hand Companhia Brasileira de Distribuicao (NYSE:CBD) is the least popular one with only 9 bullish hedge fund positions. First Solar, Inc. (NASDAQ:FSLR) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately FSLR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FSLR were disappointed as the stock returned -37.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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