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Were Hedge Funds Right About Dumping SunPower Corporation (SPWR)?

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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about SunPower Corporation (NASDAQ:SPWR).

SunPower Corporation (NASDAQ:SPWR) investors should be aware of a decrease in support from the world's most elite money managers lately. SunPower Corporation (NASDAQ:SPWR) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 24. Our calculations also showed that SPWR isn't among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.

Philip Hempleman Ardsley Partners
Philip Hempleman Ardsley Partners

Philip Hempleman of Ardsley Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Keeping this in mind we're going to take a look at the latest hedge fund action surrounding SunPower Corporation (NASDAQ:SPWR).

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

At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in SPWR a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is SPWR A Good Stock To Buy?
Is SPWR A Good Stock To Buy?

More specifically, D E Shaw was the largest shareholder of SunPower Corporation (NASDAQ:SPWR), with a stake worth $121.7 million reported as of the end of March. Trailing D E Shaw was Citadel Investment Group, which amassed a stake valued at $42.2 million. Citadel Investment Group, D E Shaw, and Renaissance Technologies 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 PDT Partners allocated the biggest weight to SunPower Corporation (NASDAQ:SPWR), around 0.23% of its 13F portfolio. Cinctive Capital Management is also relatively very bullish on the stock, earmarking 0.19 percent of its 13F equity portfolio to SPWR.

Seeing as SunPower Corporation (NASDAQ:SPWR) has experienced declining sentiment from the smart money, it's safe to say that there were a few fund managers that elected to cut their entire stakes by the end of the first quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, valued at about $20.3 million in stock, and Morris Mark's Mark Asset Management was right behind this move, as the fund sold off about $12.3 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds by the end of the first quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as SunPower Corporation (NASDAQ:SPWR) but similarly valued. We will take a look at Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI), National Instruments Corporation (NASDAQ:NATI), Eastgroup Properties Inc (NYSE:EGP), Unum Group (NYSE:UNM), PLDT Inc. (NYSE:PHI), Eagle Materials, Inc. (NYSE:EXP), and Haemonetics Corporation (NYSE:HAE). This group of stocks' market values are closest to SPWR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OLLI,24,194324,3 NATI,21,248825,3 EGP,13,82942,0 UNM,33,283684,8 PHI,4,86933,0 EXP,35,348037,-2 HAE,37,585529,5 Average,23.9,261468,2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.9 hedge funds with bullish positions and the average amount invested in these stocks was $261 million. That figure was $182 million in SPWR's case. Haemonetics Corporation (NYSE:HAE) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 4 bullish hedge fund positions. SunPower Corporation (NASDAQ:SPWR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SPWR is 42.7. 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 negative signal and 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately SPWR wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SPWR investors were disappointed as the stock returned -29% since the end of March (through 7/23) 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 in 2021.

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