A. M. Castle & Co. (NYSE:CAS) has just reported its financial results for the second quarter of 2015. The shares of Castle gained 21.40% on Monday, but it lost more than 25% in pre-market today as the company delivered lower-than-expected financial results. Castle reported consolidated net sales of $199.7 million for the quarter, compared to a figure of $249.5 million reported in the same quarter a year ago. Additionally, the global distributor of specialty metal and plastic products reported a net loss of $58.9 million or $2.50 per diluted share for the second quarter of this year, compared to a net loss of $72.3 million or $3.10 per share in the same period of 2014. However, the company claims that it has been quite successful in improving its financial position through right-sizing its business, enhancing liquidity and returning profitability. Moreover, the management asserts that their company might actually exceed the initial goals related to the company’s cost structure.
Is A. M. Castle & Co. (NYSE:CAS) the right investment to pursue these days? Hedge funds have taken a bearish view. The number of bullish hedge fund positions declined by one during the first quarter. CAS was in eight hedge funds’ equity portfolios at the end of the first quarter of 2015. However, the overall value of the holdings in A. M. Castle & Co. (NYSE:CAS) decreased by 74% on the quarter to $33.70 million.
Hedge funds have been underperforming the market for a very long time. However, this was mainly because of the huge fees that hedge funds charge as well as the poor performance of their short books. Hedge funds’ long positions performed actually better than the market. Small-cap stocks, activist targets, and spin offs were among the bright spots in hedge funds’ portfolios. For instance, the 15 most popular small-cap stocks among hedge funds outperformed the market by more than 66 percentage points since the end of August 2012 (read the details here). This strategy also managed to beat the market by double digits annually in our back tests covering the 1999-2012 period.
Insider activity is another metrics that can help investors find out more about the internal management of the company and their perspective on its growth. Therefore, we’ll now take a look at the recent insider activity at A. M. Castle & Co. (NYSE:CAS), as it might provide valuable insights into the company’s future outlook. In this way, Steven W. Scheinkman, the President and CEO of A. M. Castle & Co., purchased 7,500 shares in March of this year for $3.46 each. It’s also worth noting that there have not been any insider sales thus far in 2015.
Keeping this in mind, we’re going to take a glance at some of the hedge funds with long positions in A. M. Castle and their activity in the last couple of months.
How are hedge funds trading A. M. Castle & Co. (NYSE:CAS)?
Of the funds tracked by Insider Monkey, William C. Martin‘s Raging Capital Management had the biggest position in A. M. Castle & Co. (NYSE:CAS) at the end of March, with 4.63 million shares, worth close to $16.9 million. The second largest stake is held by Joe Huber of Huber Capital Management, with a stake of 2.69 million shares worth $9.8 million. Other hedge funds with similar optimism consist of Chuck Royce’s Royce & Associates, D. E. Shaw’s D E Shaw and Jim Simons’s Renaissance Technologies.
Because A. M. Castle & Co. (NYSE:CAS) has experienced falling interest from the smart money, we can see that there was a specific group of funds who were dropping their full holdings during the first quarter. For example, Willem Mesdag’s Red Mountain Capital cut the largest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $4.2 million in stock. Wilmot B. Harkey and Daniel Mack’s fund, Nantahala Capital Management, also dropped its position, about $3.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds in the first quarter.