Do Hedge Funds Love Constellium SE (CSTM)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Constellium SE (NYSE:CSTM) and determine whether hedge funds had an edge regarding this stock.

Constellium SE (NYSE:CSTM) was in 32 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 50. CSTM has experienced a decrease in activity from the world’s largest hedge funds lately. There were 34 hedge funds in our database with CSTM holdings at the end of March. Our calculations also showed that CSTM isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

At the moment there are a large number of gauges stock market investors have at their disposal to value publicly traded companies. A duo of the less utilized gauges are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the elite fund managers can trounce the market by a superb amount (see the details here).

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to take a look at the latest hedge fund action regarding Constellium SE (NYSE:CSTM).

What does smart money think about Constellium SE (NYSE:CSTM)?

At second quarter’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 37 hedge funds with a bullish position in CSTM a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is CSTM A Good Stock To Buy?

Among these funds, Nut Tree Capital held the most valuable stake in Constellium SE (NYSE:CSTM), which was worth $31.1 million at the end of the third quarter. On the second spot was Kingdon Capital which amassed $17.8 million worth of shares. Sachem Head Capital, Bronson Point Partners, and Scopus Asset 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 Nut Tree Capital allocated the biggest weight to Constellium SE (NYSE:CSTM), around 9.81% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, earmarking 9.62 percent of its 13F equity portfolio to CSTM.

Judging by the fact that Constellium SE (NYSE:CSTM) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of money managers who were dropping their entire stakes in the second quarter. Intriguingly, Dan Sobol and Lisa Hess’s SkyTop Capital Management cut the biggest investment of all the hedgies tracked by Insider Monkey, comprising close to $8.2 million in stock. Isaac Corre’s fund, Governors Lane, also dropped its stock, about $5.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Constellium SE (NYSE:CSTM) but similarly valued. We will take a look at Hailiang Education Group Inc. (NASDAQ:HLG), INTL Fcstone Inc (NASDAQ:INTL), City Holding Company (NASDAQ:CHCO), Enerpac Tool Group Corp. (NYSE:EPAC), Diversified Healthcare Trust (NASDAQ:DHC), Usa Compression Partners LP (NYSE:USAC), and GMS Inc. (NYSE:GMS). This group of stocks’ market caps are closest to CSTM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HLG 2 5376 0
INTL 14 74789 4
CHCO 6 13558 0
EPAC 18 88584 4
DHC 14 37796 4
USAC 3 9807 -2
GMS 17 86162 1
Average 10.6 45153 1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.6 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $193 million in CSTM’s case. Enerpac Tool Group Corp. (NYSE:EPAC) is the most popular stock in this table. On the other hand Hailiang Education Group Inc. (NASDAQ:HLG) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Constellium SE (NYSE:CSTM) is more popular among hedge funds. Our overall hedge fund sentiment score for CSTM is 72.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 returned 23.8% in 2020 through September 14th but still managed to beat the market by 17.6 percentage points. Hedge funds were also right about betting on CSTM as the stock returned 12.6% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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