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Did Hedge Funds Make The Right Call On Commercial Metals Company (CMC) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Commercial Metals Company (NYSE:CMC) based on that data and determine whether they were really smart about the stock.

Commercial Metals Company (NYSE:CMC) has experienced a decrease in support from the world’s most elite money managers lately. CMC was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. There were 27 hedge funds in our database with CMC positions at the end of the previous quarter. Our calculations also showed that CMC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MOORE GLOBAL INVESTMENTS

Louis Bacon Moore of Moore Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s take a gander at the latest hedge fund action encompassing Commercial Metals Company (NYSE:CMC).

What have hedge funds been doing with Commercial Metals Company (NYSE:CMC)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -30% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in CMC over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Commercial Metals Company (NYSE:CMC), which was worth $64.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $36.3 million worth of shares. Highline Capital Management, Scopus Asset Management, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Highline Capital Management allocated the biggest weight to Commercial Metals Company (NYSE:CMC), around 4.93% of its 13F portfolio. Scopus Asset Management is also relatively very bullish on the stock, designating 1.55 percent of its 13F equity portfolio to CMC.

Because Commercial Metals Company (NYSE:CMC) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of fund managers that elected to cut their full holdings by the end of the first quarter. Interestingly, Mark Coe’s Intrinsic Edge Capital dumped the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $2.9 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dumped its stock, about $2.5 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 8 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to Commercial Metals Company (NYSE:CMC). We will take a look at National General Holdings Corp (NASDAQ:NGHC), Northwest Natural Holding Company (NYSE:NWN), ASGN Incorporated (NYSE:ASGN), and Evercore Inc. (NYSE:EVR). This group of stocks’ market valuations match CMC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NGHC 18 186028 2
NWN 17 60220 0
ASGN 19 43700 1
EVR 29 198051 -3
Average 20.75 122000 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $187 million in CMC’s case. Evercore Inc. (NYSE:EVR) is the most popular stock in this table. On the other hand Northwest Natural Holding Company (NYSE:NWN) is the least popular one with only 17 bullish hedge fund positions. Commercial Metals Company (NYSE:CMC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on CMC as the stock returned 32.6% since the end of March and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.