We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Nucor Corporation (NYSE:NUE).
Nucor Corporation (NYSE:NUE) has seen a decrease in support from the world’s most elite money managers lately. Our calculations also showed that NUE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the recent hedge fund action regarding Nucor Corporation (NYSE:NUE).
Hedge fund activity in Nucor Corporation (NYSE:NUE)
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in NUE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the biggest position in Nucor Corporation (NYSE:NUE). Renaissance Technologies has a $71.4 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, managed by Ken Griffin, which holds a $64.9 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions contain Ken Griffin’s Citadel Investment Group, Cliff Asness’s AQR Capital Management and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position MIK Capital allocated the biggest weight to Nucor Corporation (NYSE:NUE), around 2.79% of its 13F portfolio. Arjuna Capital is also relatively very bullish on the stock, dishing out 0.41 percent of its 13F equity portfolio to NUE.
Because Nucor Corporation (NYSE:NUE) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there is a sect of fund managers who sold off their positions entirely heading into Q4. It’s worth mentioning that Israel Englander’s Millennium Management dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $4.8 million in stock, and Guy Shahar’s DSAM Partners was right behind this move, as the fund said goodbye to about $2.5 million worth. These moves are interesting, as total hedge fund interest dropped by 2 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to Nucor Corporation (NYSE:NUE). We will take a look at 0, Credicorp Ltd. (NYSE:BAP), Equifax Inc. (NYSE:EFX), and Check Point Software Technologies Ltd. (NASDAQ:CHKP). This group of stocks’ market values resemble NUE’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $845 million. That figure was $237 million in NUE’s case. Equifax Inc. (NYSE:EFX) is the most popular stock in this table. On the other hand Credicorp Ltd. (NYSE:BAP) is the least popular one with only 22 bullish hedge fund positions. Nucor Corporation (NYSE:NUE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately NUE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NUE investors were disappointed as the stock returned -45.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.