The steel industry has seen an unprecedented rally this year with some stocks boasting gains of over 100% so far in 2016. While some of those gains can be attributed to the rally in commodities, a large part of it was a direct result of the U.S. Department of Commerce imposing a hefty duty on imports of cold-rolled steel from seven countries, on March 1. When the Department of Commerce made this move, it gave a glimmer of hope to investors that the U.S. steel industry might finally be out of the woods after seeing one of the worst downturns ever. While scanning the portfolios of over 800 hedge funds we track, we found that a number of them jumped on this opportunity and started buying steel stocks during the first quarter. However, they didn’t just buy stocks of companies based in the United States, but also of global majors with a large presence in the country. In this post, we will take a look at the top five steel stocks on which funds covered in our database collectively became bullish on heading into the second quarter.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
#5 Harsco Corporation (NYSE:HSC)
– Investors with long positions (as of March 31): 18
– Aggregate value of investors’ holdings (as of March 31): $53.21 million
Let’s begin with Harsco Corporation (NYSE:HSC), whose ownership among funds covered by us increased by three during the first quarter, but the aggregate value of their holdings in it declined by $11.4 million during the same period. Harsco Corporation (NYSE:HSC)’s stock saw a heavy decline at the end of February after the company reported weak numbers for its fiscal 2015 fourth quarter. While the stock has managed to recoup those losses in the past few months, it is still trading down by over 17% year-to-date. For its fiscal 2016 first quarter, the industrial services company reported EPS of $0.03 on revenue of $353 million, soundly beating analysts’ estimates of a loss of $0.05 per share on revenue of $347.50 million. Hedge funds that reduced their stakes in Harsco Corporation during the first quarter included billionaire Israel Englander‘s Millenium Management, which cut its holding in the company by 37% to 845,290 shares.