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Hedge Funds Are Dumping Commercial Metals Company (CMC)

In this article we will check out the progression of hedge fund sentiment towards Commercial Metals Company (NYSE:CMC) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Commercial Metals Company (NYSE:CMC) ready to rally soon? Prominent investors are taking a bearish view. The number of bullish hedge fund positions fell by 8 lately. 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). 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.

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

To the average investor there are several formulas stock market investors employ to value their stock investments. A pair of the most innovative formulas are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the best investment managers can outperform the S&P 500 by a significant margin (see the details here).

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the new hedge fund action surrounding Commercial Metals Company (NYSE:CMC).

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

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on 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 the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

The largest stake in Commercial Metals Company (NYSE:CMC) was held by Citadel Investment Group, which reported holding $64.5 million worth of stock at the end of September. It was followed by AQR Capital Management with a $36.3 million position. Other investors bullish on the company included Highline Capital Management, Scopus Asset Management, and Millennium Management. 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, earmarking 1.55 percent of its 13F equity portfolio to CMC.

Seeing as Commercial Metals Company (NYSE:CMC) has witnessed falling interest from hedge fund managers, it’s safe to say that there were a few hedgies that decided to sell off their positions entirely in the first quarter. It’s worth mentioning that Mark Coe’s Intrinsic Edge Capital sold off the largest investment of the 750 funds watched by Insider Monkey, worth an estimated $2.9 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dropped its stock, about $2.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 8 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Commercial Metals Company (NYSE:CMC) but similarly valued. These stocks are National General Holdings Corp (NASDAQ:NGHC), Northwest Natural Holding Company (NYSE:NWN), ASGN Incorporated (NYSE:ASGN), and Evercore Inc. (NYSE:EVR). All of these stocks’ market caps resemble CMC’s market cap.

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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on CMC as the stock returned 31.4% during the second quarter and outperformed the market by an even larger margin.

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