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Is Cleveland-Cliffs Inc (CLF) Going To Burn These Hedge Funds ?

Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Cleveland-Cliffs Inc (NYSE:CLF) from the perspective of those elite funds.

Is Cleveland-Cliffs Inc (NYSE:CLF) a healthy stock for your portfolio? Money managers are becoming less hopeful. The number of bullish hedge fund positions fell by 7 recently. Our calculations also showed that CLF isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Kevin Michael Ulrich Anchorage Advisors

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the new hedge fund action surrounding Cleveland-Cliffs Inc (NYSE:CLF).

What have hedge funds been doing with Cleveland-Cliffs Inc (NYSE:CLF)?

At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in CLF over the last 16 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CLF_oct2019

Of the funds tracked by Insider Monkey, Contrarian Capital, managed by Jon Bauer, holds the most valuable position in Cleveland-Cliffs Inc (NYSE:CLF). Contrarian Capital has a $140.8 million position in the stock, comprising 13.4% of its 13F portfolio. Sitting at the No. 2 spot is Ken Fisher of Fisher Asset Management, with a $137.4 million position; 0.2% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions encompass Robert Polak’s Anchor Bolt Capital, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management.

Seeing as Cleveland-Cliffs Inc (NYSE:CLF) has witnessed a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of money managers that decided to sell off their entire stakes in the second quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management sold off the largest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $13 million in stock. Kevin Michael Ulrich and Anthony Davis’s fund, Anchorage Advisors, also cut its stock, about $10.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 7 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cleveland-Cliffs Inc (NYSE:CLF) but similarly valued. These stocks are Investors Bancorp, Inc. (NASDAQ:ISBC), TreeHouse Foods Inc. (NYSE:THS), Five9 Inc (NASDAQ:FIVN), and Boyd Gaming Corporation (NYSE:BYD). All of these stocks’ market caps resemble CLF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ISBC 23 569055 -1
THS 17 142178 -6
FIVN 23 478688 -2
BYD 30 350426 2
Average 23.25 385087 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $385 million. That figure was $540 million in CLF’s case. Boyd Gaming Corporation (NYSE:BYD) is the most popular stock in this table. On the other hand TreeHouse Foods Inc. (NYSE:THS) is the least popular one with only 17 bullish hedge fund positions. Cleveland-Cliffs Inc (NYSE:CLF) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CLF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CLF were disappointed as the stock returned -32% during the third quarter 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 many of these stocks already outperformed the market so far this year.

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

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