Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Steel Dynamics, Inc. (NASDAQ:STLD).
Is Steel Dynamics, Inc. (NASDAQ:STLD) going to take off soon? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund positions retreated by 8 lately. Our calculations also showed that STLD 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.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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 go over the new hedge fund action regarding Steel Dynamics, Inc. (NASDAQ:STLD).
What does smart money think about Steel Dynamics, Inc. (NASDAQ:STLD)?
At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in STLD a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Steel Dynamics, Inc. (NASDAQ:STLD), which was worth $107.2 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $88.1 million worth of shares. Renaissance Technologies, Millennium Management, and Citadel Investment Group 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 Anchor Bolt Capital allocated the biggest weight to Steel Dynamics, Inc. (NASDAQ:STLD), around 4.63% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.61 percent of its 13F equity portfolio to STLD.
Due to the fact that Steel Dynamics, Inc. (NASDAQ:STLD) has experienced declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of fund managers that slashed their entire stakes last quarter. At the top of the heap, Alexander Mitchell’s Scopus Asset Management cut the biggest investment of all the hedgies monitored by Insider Monkey, comprising about $28.9 million in stock, and Sara Nainzadeh’s Centenus Global Management was right behind this move, as the fund dumped about $4.6 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 8 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Steel Dynamics, Inc. (NASDAQ:STLD) but similarly valued. These stocks are First American Financial Corp (NYSE:FAF), PG&E Corporation (NYSE:PCG), Nuance Communications Inc. (NASDAQ:NUAN), and AECOM (NYSE:ACM). This group of stocks’ market valuations are closest to STLD’s market valuation.
|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 42.25 hedge funds with bullish positions and the average amount invested in these stocks was $987 million. That figure was $331 million in STLD’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand AECOM (NYSE:ACM) is the least popular one with only 39 bullish hedge fund positions. Compared to these stocks Steel Dynamics, Inc. (NASDAQ:STLD) is even less popular than ACM. Hedge funds dodged a bullet by taking a bearish stance towards STLD. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately STLD wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); STLD investors were disappointed as the stock returned 17.8% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.