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.
4. ArcelorMittal SA (ADR) (NYSE:MT)
Investors with Long Positions (as of June 30): 22
Aggregate Value of Investors’ Holdings (as of June 30): $370.05 Million
The number of hedge funds monitored by our team that reported a stake in ArcelorMittal SA (ADR) (NYSE:MT) at the end of the second quarter was up by five quarter-over-quarter. Similarly, the value of their stakes increased by $75.73 million during that time span. The shares of the integrated steel and mining company have lost over 36% year-to-date, primarily owing to China’s distortion of the global steel market dynamics. China’s exports have been at record highs this year due to overcapacity and slowing economic growth, while the strong U.S dollar has put even more pressure on the demand for ArcelorMittal’s products. Dmitry Balyasny’s Balyasny Asset Management initiated a 2.86 million-share stake in ArcelorMittal SA (ADR) (NYSE:MT) during the recent quarter.
3. Resolute Forest Products Inc (NYSE:RFP)
Investors with Long Positions (as of June 30): 22
Aggregate Value of Investors’ Holdings (as of June 30): $523.31 Million
Resolute Forest Products Inc (NYSE:RFP) is receiving a bit of attention from the hedge fund industry, as four more investors had the stock in their portfolios at the end of the second quarter than they did at the start of it. Nevertheless, the value of the money invested in the stock declined by $325.11 million during the quarter. It is also worth mentioning that the 22 hedge funds own 48.90% of the company’s outstanding common stock as of June 30, which indicates confidence in Resolute Forest Products’ future prospects. Resolute Forest’s stock has lost almost half of its value since the beginning of the year, which might lure bottom-fishing investors to look for trading opportunities. Jim Simons’ Renaissance Technologies more than doubled its stake in Resolute Forest Products Inc (NYSE:RFP) during the latest quarter, reporting 780,087 shares in its 13F filing for the June quarter.
2. Century Aluminum Co (NASDAQ:CENX)
Investors with Long Positions (as of June 30): 24
Aggregate Value of Investors’ Holdings (as of June 30): $93.58 Million
There was one more hedge fund that owned Century Aluminum Co (NASDAQ:CENX) at the end of the June quarter compared to the prior one. At the same time, the value of hedge funds’ stakes in the stock grew by $22.27 million. Just recently, Century Aluminum of Kentucky, a subsidiary of Century Aluminum, announced the curtailment of one potline at its Kentucky aluminum smelter. Century Aluminum previously announced its plans to curtail its plant operations on October 24, 2015 should the current pricing environment remain unchanged. Sinking aluminum prices and an increasing oversupply of the metal have worsened the industry’s crisis, but this environment will most likely come to an end sooner or later. Given that the shares of Century Aluminum have slipped by more than 76% year-to-date, the stock’s downside is significantly lower than its upside potential. Robert Bishop of Impala Asset Management believes in Century Aluminum Co (NASDAQ:CENX)’s turnaround, having added a 1.88 million share-position in the stock to his portfolio in the second quarter.
1. Constellium NV (NYSE:CSTM)
Investors with Long Positions (as of June 30): 25
Aggregate Value of Investors’ Holdings (as of June 30): $390.37 Million
Constellium NV (NYSE:CSTM) represents another good low-priced opportunity, even though hedge funds’ sentiment declined during the latest quarter. The number of hedge funds with positions in the stock was down by one quarter-over-quarter, while the value of these positions decreased by $72.93 million. Even so, the hedge funds tracked by the Insider Monkey team owned 31.50% of the company’s outstanding shares at the end of June. Constellium’s stock performance has been disappointing this year, with its shares losing 49% since the start of 2015. Even though the company’s business has been relatively strong lately, Constellium NV has been facing challenges with its Muscle Shoals facility, acquired from Wise Metals. Phill Gross and Robert Atchinson’s Adage Capital Management is the largest equity holder of Constellium NV (NYSE:CSTM) in our database, with 8.33 million shares.
Disclosure: None
