The performance of the industrial goods sector is mainly driven by the demand for building construction, along with the demand for manufactured products. If taking a closer look at the housing starts in particular, the tightening labor market and the strengthening U.S economy have greatly supported this segment in 2015. Housing starts have been above one million-units over the last few months, even though the pace of expansion has been declining lately. The Federal Reserve’s decision to keep interest rates unchanged is expected to further fuel growth in the industrial goods sector, so we pinpointed five low-priced stocks under $10 in this sector that might be a bargain at the moment. It’s worth noting that one cannot simply look at a stock price and conclude that the stock is a bargain, so we looked at hedge funds’ sentiment on cheap stocks in the sector to find the ones that are poised to explode. Nevertheless, one should not overlook the fragile global economy, which has put significant downward pressure on industrial stocks.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last 36 months and outperformed the S&P 500 Index by 60 percentage points (see the details here).
5. AngloGold Ashanti Limited (ADR) (NYSE:AU)
Investors with Long Positions (as of June 30): 18
Aggregate Value of Investors’ Holdings (as of June 30): $585.10 Million
The total number of hedge funds tracked by Insider Monkey invested in AngloGold Ashanti Limited (ADR) (NYSE:AU) decreased by three quarter-over-quarter, while the value of their investments in the stock decreased by $50.06 million. Considering that the shares of AngloGold, which are currently trading at $8.50 per share, have previously reached price levels of nearly $60 a share, they may have huge potential to the upside. Just recently, Randgold Resources Limited (NASDAQ:GOLD) decided to fund and lead a plan to rebuild AngloGold Ashanti’s Obuasi mine in Ghana, which stopped operating last year. UBS AG believes that the potential of the Obuasi mine is not fully reflected in the share price of AU. Howard Marks’ Oaktree Capital Management is among the hedge funds bullish on AngloGold Ashanti Limited (ADR) (NYSE:AU), holding 2.13 million shares as of June 30.