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Hedge Funds Never Been Less Bullish On United States Steel Corporation (X)

In this article we will take a look at whether hedge funds think United States Steel Corporation (NYSE:X) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is United States Steel Corporation (NYSE:X) a buy, sell, or hold? The smart money is taking a pessimistic view. The number of bullish hedge fund bets fell by 9 in recent months. Our calculations also showed that X 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management

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. Keeping this in mind we’re going to take a glance at the new hedge fund action encompassing United States Steel Corporation (NYSE:X).

Hedge fund activity in United States Steel Corporation (NYSE:X)

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -35% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in X over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of United States Steel Corporation (NYSE:X), with a stake worth $19.9 million reported as of the end of September. Trailing Citadel Investment Group was Luminus Management, which amassed a stake valued at $12.4 million. Islet Management, D E Shaw, and OZ 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 Luminus Management allocated the biggest weight to United States Steel Corporation (NYSE:X), around 1.28% of its 13F portfolio. Islet Management is also relatively very bullish on the stock, designating 1.08 percent of its 13F equity portfolio to X.

Seeing as United States Steel Corporation (NYSE:X) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there exists a select few money managers that decided to sell off their positions entirely by the end of the first quarter. It’s worth mentioning that Todd J. Kantor’s Encompass Capital Advisors said goodbye to the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth close to $13.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $13 million worth. These transactions are important to note, as total hedge fund interest dropped by 9 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as United States Steel Corporation (NYSE:X) but similarly valued. We will take a look at Kaman Corporation (NYSE:KAMN), IAMGOLD Corporation (NYSE:IAG), HNI Corp (NYSE:HNI), and Tennant Company (NYSE:TNC). This group of stocks’ market caps are closest to X’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KAMN 13 137686 -6
IAG 17 107106 0
HNI 15 47165 -5
TNC 11 89348 0
Average 14 95326 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $37 million in X’s case. IAMGOLD Corporation (NYSE:IAG) is the most popular stock in this table. On the other hand Tennant Company (NYSE:TNC) is the least popular one with only 11 bullish hedge fund positions. United States Steel Corporation (NYSE:X) is not the most popular stock in this group but hedge fund interest is still above 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 but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on X as the stock returned 27.7% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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