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Beware Century Aluminum Co (CENX), As Smart Money Flees The Stock

It’s a little-known fact that stock performance is not evenly distributed (i.e. you don’t have a 50/50 chance of picking a market-beating stock). In fact, despite the S&P 500 gaining about 5.2% between November 1, 2014 and October 30, 2015, less than 49% of the stocks in the index beat the market during that time. In contrast, the 30 stocks from the index which were the most popular among the investors that we track returned 9.5% during that time and 63% of them beat the market. This shows that while hedge funds get a lot of flak from the mainstream media for their performance, it can be rewarding to follow their moves using the right sets of data. Even then, there is never a fool proof strategy to generating returns, as even the collective wisdom of top hedge funds gets it wrong some times, as in the case of some of their top picks from the index like Micron and Anadarko. The data though, shows that following the collective wisdom of select hedge funds can be a very wise move overall.

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Century Aluminum Co (NASDAQ:CENX) was in 14 hedge funds’ portfolios at the end of the third quarter of 2015. Century Aluminum Co (NASDAQ:CENX) has experienced a notable decrease in support from the world’s most elite money managers of late. There were 24 hedge funds in our database with Century Aluminum Co (NASDAQ:CENX) holdings at the end of the previous quarter. At the end of this article, we will also compare Century Aluminum Co (NASDAQ:CENX) to other stocks including Ashford Hospitality Prime Inc (NYSE:AHP), Memorial Production Partners LP (NASDAQ:MEMP), and Pericom Semiconductor (NASDAQ:PSEM) to get a better sense of its popularity.

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In the 21st century investor’s toolkit there are several tools market participants use to size up publicly traded companies. Some of the less utilized tools are hedge fund and insider trading signals. we have shown that, historically, those who follow the top picks of the best investment managers can outperform their index-focused peers by a healthy margin (see the details here).

With all of this in mind, let’s review the new action regarding Century Aluminum Co (NASDAQ:CENX).

Hedge fund activity in Century Aluminum Co (NASDAQ:CENX)

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 42% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Israel Englander’s Millennium Management has the most valuable position in Century Aluminum Co (NASDAQ:CENX), worth close to $7.3 million, comprising less than 0.1% of its total 13F portfolio. The second-largest stake is held by Royce & Associates, a mutual fund led by Chuck Royce, holding a $7.2 million position; the mutual fund also has less than 0.1% of its 13F portfolio invested in the stock. Other hedge funds that hold long positions comprise Jim Simons’ Renaissance Technologies, Cliff Asness’ AQR Capital Management, and George Hall’s Clinton Group.

Due to the fact that Century Aluminum Co (NASDAQ:CENX) has experienced bearish sentiment from the smart money, logic holds that there were a few money managers who were dropping their positions entirely by the end of the third quarter. At the top of the heap, Robert Bishop’s Impala Asset Management dumped the biggest position of the “upper crust” of funds followed by Insider Monkey, comprising close to $19.7 million in stock, while Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital were right behind this move, as the fund managers sold off about $15.5 million worth of shares. These moves are interesting, as aggregate hedge fund interest dropped by ten funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to Century Aluminum Co (NASDAQ:CENX). These stocks are Ashford Hospitality Prime Inc (NYSE:AHP), Memorial Production Partners LP (NASDAQ:MEMP), Pericom Semiconductor (NASDAQ:PSEM), and Progenics Pharmaceuticals, Inc. (NASDAQ:PGNX). This group of stocks’ market valuations match Century Aluminum Co (NASDAQ:CENX)’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AHP 14 72741 1
MEMP 4 9732 -2
PSEM 13 58944 1
PGNX 15 123257 -1

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $26 million in Century Aluminum Co (NASDAQ:CENX)’s case. Progenics Pharmaceuticals, Inc. (NASDAQ:PGNX) is the most popular stock in this table. On the other hand, Memorial Production Partners LP (NASDAQ:MEMP) is the least popular one with only four bullish hedge fund positions. Century Aluminum Co (NASDAQ:CENX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are pouring a good deal of their capital into. In this regard Progenics Pharmaceuticals, Inc. (NASDAQ:PGNX) might be a better candidate to consider a long position in.

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