Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Cleveland-Cliffs Inc (NYSE:CLF).
Is CLF stock a buy? Money managers were getting more optimistic. The number of long hedge fund bets moved up by 5 lately. Cleveland-Cliffs Inc (NYSE:CLF) was in 27 hedge funds’ portfolios at the end of December. The all time high for this statistic is 35. Our calculations also showed that CLF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 22 hedge funds in our database with CLF positions at the end of the third quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 124 percentage points since March 2017 (see the details here).
John Zaro of Bourgeon Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to review the key hedge fund action surrounding Cleveland-Cliffs Inc (NYSE:CLF).
Do Hedge Funds Think CLF Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CLF over the last 22 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fisher Asset Management held the most valuable stake in Cleveland-Cliffs Inc (NYSE:CLF), which was worth $250 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $124.6 million worth of shares. Key Square Capital Management, LMR Partners, and D E Shaw 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 Key Square Capital Management allocated the biggest weight to Cleveland-Cliffs Inc (NYSE:CLF), around 14.93% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, earmarking 1.82 percent of its 13F equity portfolio to CLF.
As industrywide interest jumped, key money managers were leading the bulls’ herd. Key Square Capital Management, managed by Scott Bessent, initiated the biggest position in Cleveland-Cliffs Inc (NYSE:CLF). Key Square Capital Management had $62.2 million invested in the company at the end of the quarter. David Greenspan’s Slate Path Capital also initiated a $7.3 million position during the quarter. The other funds with brand new CLF positions are Louis Bacon’s Moore Global Investments, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Greg Eisner’s Engineers Gate Manager.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cleveland-Cliffs Inc (NYSE:CLF) but similarly valued. We will take a look at Lemonade, Inc. (NYSE:LMND), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), Pearson PLC (NYSE:PSO), Huntington Ingalls Industries Inc (NYSE:HII), GrubHub Inc (NYSE:GRUB), Fiverr International Ltd. (NYSE:FVRR), and iRhythm Technologies, Inc. (NASDAQ:IRTC). This group of stocks’ market values match CLF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LMND | 13 | 211852 | -2 |
| LECO | 20 | 273498 | -4 |
| PSO | 5 | 20277 | 0 |
| HII | 21 | 281675 | -8 |
| GRUB | 38 | 1608629 | -11 |
| FVRR | 29 | 528731 | -1 |
| IRTC | 19 | 295586 | -7 |
| Average | 20.7 | 460035 | -4.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.7 hedge funds with bullish positions and the average amount invested in these stocks was $460 million. That figure was $683 million in CLF’s case. GrubHub Inc (NYSE:GRUB) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 5 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. Our overall hedge fund sentiment score for CLF is 66.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on CLF as the stock returned 19.4% since the end of Q4 (through 4/19) 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.
