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Is Sunrun Inc (RUN) A Good Stock To Buy?

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·6 min read
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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Sunrun Inc (NASDAQ:RUN) changed recently.

Is Sunrun Inc (NASDAQ:RUN) a good stock to buy? Prominent investors were taking a bullish view. The number of long hedge fund bets increased by 4 in recent months. Sunrun Inc (NASDAQ:RUN) was in 45 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 48. Our calculations also showed that RUN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 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 79 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 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.

William Gray Orbis Investment Management
William Gray Orbis Investment Management

William Gray of Orbis Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, artificial intelligence is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging AI 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. Now we're going to take a peek at the latest hedge fund action regarding Sunrun Inc (NASDAQ:RUN).

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

At the end of the second quarter, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RUN over the last 24 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Is RUN A Good Stock To Buy?
Is RUN A Good Stock To Buy?

The largest stake in Sunrun Inc (NASDAQ:RUN) was held by Coatue Management, which reported holding $953.1 million worth of stock at the end of June. It was followed by Tiger Global Management LLC with a $394.5 million position. Other investors bullish on the company included Viking Global, Orbis Investment Management, and Point State Capital. In terms of the portfolio weights assigned to each position Caxton Associates LP allocated the biggest weight to Sunrun Inc (NASDAQ:RUN), around 8.68% of its 13F portfolio. Quaero Capital is also relatively very bullish on the stock, setting aside 4.55 percent of its 13F equity portfolio to RUN.

Now, some big names have been driving this bullishness. Jericho Capital Asset Management, managed by Josh Resnick, initiated the largest position in Sunrun Inc (NASDAQ:RUN). Jericho Capital Asset Management had $94.8 million invested in the company at the end of the quarter. Zach Schreiber's Point State Capital also made a $92 million investment in the stock during the quarter. The other funds with new positions in the stock are Joseph Samuels's Islet Management, Philip Hempleman's Ardsley Partners, and Anand Parekh's Alyeska Investment Group.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Sunrun Inc (NASDAQ:RUN) but similarly valued. We will take a look at Sprint Corporation (NYSE:S), Pegasystems Inc. (NASDAQ:PEGA), Cree, Inc. (NASDAQ:CREE), IPG Photonics Corporation (NASDAQ:IPGP), Essential Utilities Inc (NYSE:WTRG), Pentair plc (NYSE:PNR), and Formula One Group (NASDAQ:FWONK). This group of stocks' market caps are similar to RUN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position S,67,2062506,67 PEGA,27,2029409,-8 CREE,31,391130,1 IPGP,23,399842,-8 WTRG,13,272737,-6 PNR,25,748622,-5 FWONK,41,1724231,4 Average,32.4,1089782,6.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.4 hedge funds with bullish positions and the average amount invested in these stocks was $1090 million. That figure was $2518 million in RUN's case. Sprint Corporation (NYSE:S) is the most popular stock in this table. On the other hand Essential Utilities Inc (NYSE:WTRG) is the least popular one with only 13 bullish hedge fund positions. Sunrun Inc (NASDAQ:RUN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RUN is 66.8. 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 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately RUN wasn't nearly as popular as these 5 stocks and hedge funds that were betting on RUN were disappointed as the stock returned -20.1% since the end of June (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 many of these stocks already outperformed the market since 2019.

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