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Five Steel Stocks Hedge Funds Love The Most

Just as the market seemed to be stabilizing after the recent correction, plans to impose import tariffs on steel and aluminum have pushed them back inTO turmoil. The market experienceD a minor sell-off as investors assessed the possibility of a trade war that would ensue should US trade partners chose to retaliate. If you open any standard economics book, you would find out that tariffs lead a decrease in welfare of the consumers. The loss in consumer surplus is divided into three categories: the state’s tax revenue, deadweight loss and an increase in producer surplus. The increase in producer surplus is what interests us more in this case and it’s the US steel producers that will reap the benefits of tariffs, should the US administration instate them. So if you want to add one or two steel companies to your portfolio, we recommend that you take into account what companies professional investors were betting on even before tariffs were announced.

Christian Lagerek/Shutterstock.com

Christian Lagerek/Shutterstock.com

Number 5 on our list is Commercial Metals Company (NYSE:CMC), an Irving, Texas-based manufacturer and recycler of steel products. According to Insider Monkey’s database, 20 elite fund managers were invested in this stock at the end of the 2017 fourth quarter, up from 14 recorded at the end of the previous quarter. The largest position was held by Jacob Doft’s Highline Capital Management, which reported ownership of 4.28 million shares in its latest 13F filing. Highline Capital had boosted its stake in Commercial Metals Company (NYSE:CMC) by 49% during the fourth quarter. Billionaire Ken Griffin was also betting on Commercial Metals Company, with Citadel Investment Group reportedly holding 1.96 million shares. Commercial Metals Company (NYSE:CMC) stock has had a great year so far, currently up by 17%. The company is expected to release its next financial report on March 22, with analysts projecting $1.14 billion in revenue and earnings of $0.27 per share.

Next up is AK Steel Holding Corporation (NYSE:AKS), a producer of steel and steel products. During the last three months of 2017, AK Steel also registered a boost in popularity among the funds tracked by Insider Monkey. In their latest 13F filing, 28 funds reported a stake in the steel maker, up from 26 registered after the third quarter 13F filings. Ken Griffin’s Citadel Investment Group has massively increased its exposure to AK Steel Holding Corporation (NYSE:AKS), having reported ownership of approximately 6.94 million shares. Peter Muller’s PDT Partners initiated a fresh bet on AK Steel during the fourth quarter and accumulated 3.66 million shares according to regulatory filings. Looking at valuation measures, AK Steel Holding Corporation (NYSE:AKS) shares do seem to be overvalued at a Price to Earnings (P/E) multiple of 275. However, analysts expect a significant increase in the company’s profits and have projected a forward P/E ratio of 7.66.

One of the largest US steel producers, Nucor Corporation (NYSE:NUE) is also one of the most popular steel stocks among the funds followed by Insider Monkey. At the end of December 2017, 33 funds had Nucor in their equity portfolios up from 27 a quarter before. Ken Griffin’s Citadel Investment Group is leading the way again, having established a fresh position during the fourth quarter. According to its latest 13F filing, Citadel held roughly 1.73 million shares of Nucor. Jonathan Barrett and Paul Segal, the managers of Luminus Management, were also bullish on this stock and had quadrupled their stake to 1.65 million shares. Analysts are recommending Nucor Corporation (NYSE:NUE) mainly as a Buy and have placed a price target of $69.47 per share, which indicates an upside potential of roughly 3%. Although Nucor Corporation (NYSE:NUE) experienced a 14% drop as part of the recent correction, it has regained most of the ground lost and is not up 8% year-to-date. The company pays an annual dividend of $1.51 per share, which translates into a 2.2% yield, the highest among the stocks analyzed in this article.

One of the icons of America’s heavy industry, United States Steel Corporation (NYSE:X) is number two in this top. During the fourth quarter, the number of funds invested in US Steel rose from 30 to 34, according to our data. In its latest 13F filing, David E Shaw’s fund, D E Shaw, has reported a 128% increase in its holding of the stock to approximately 4.45 million shares. David Greenspan, the manager of Slate Path Capital, was also optimistic about the prospects of United States Steel Corporation (NYSE:X), having increased his fund’s investment by 48% during the fourth quarter. According to regulatory filings, Slate Path Capital’s stake in US Steel amounts to exactly 3.28 million shares. United States Steel Corporation (NYSE:X) managed to surprise investors when it announced 2017 fourth quarter results. The company posted adjusted earnings of $0.76 per share, topping analysts’ estimates of $0.68 per share. Revenue increased by 18% year-over-year to $3.13 billion, also surpassing expectations of $3.07 billion. Shares are currently trading at $44 apiece, up by roughly 23% for the year.

Hedge funds’ favorite in the steel industry at the end of 2017 was Steel Dynamics, Inc. (NASDAQ:STLD). According to data compiled by Insider Monkey, 36 top fund managers were invested in the company, up from 27 registered three months earlier. The largest stake was held by Robert Pitts’ Steadfast Capital Management, which reported ownership of approximately 4.57 million shares in its latest 13F filing, a 53% increase over the third quarter. Ken Griffin’s Citadel Investment Group was not far behind with a position that amounted to 3.37 million shares. 2017 was a very successful year for Steel Dynamics, Inc. (NASDAQ:STLD). The company posted a 22.6% increase in revenue to $9.54 billion, while operating margin rose from 9.36% in 2016 to 11.18% in 2017. Steel Dynamics, Inc. (NASDAQ:STLD) also managed to increase its profitability, with 2017 net margin rising to 8.52% from 4.91% posted for 2016. Given such a robust performance, it is no wonder top hedge fund managers have piled into the stock at the end of the year.

Disclosure: none.