Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Commercial Metals Company (NYSE:CMC)? The smart money sentiment can provide an answer to this question.
Is CMC a good stock to buy now? Commercial Metals Company (NYSE:CMC) has seen a decrease in activity from the world’s largest hedge funds recently. Commercial Metals Company (NYSE:CMC) was in 20 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 27. Our calculations also showed that CMC isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
In today’s marketplace there are numerous gauges market participants use to grade publicly traded companies. A duo of the less utilized gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the best money managers can outclass the broader indices by a very impressive amount (see the details here).
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. Keeping this in mind let’s analyze the key hedge fund action surrounding Commercial Metals Company (NYSE:CMC).
Do Hedge Funds Think CMC Is A Good Stock To Buy Now?
At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CMC over the last 21 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Commercial Metals Company (NYSE:CMC) was held by AQR Capital Management, which reported holding $51.4 million worth of stock at the end of September. It was followed by D E Shaw with a $32.2 million position. Other investors bullish on the company included Gotham Asset Management, Renaissance Technologies, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Brasada Capital Management allocated the biggest weight to Commercial Metals Company (NYSE:CMC), around 0.34% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.33 percent of its 13F equity portfolio to CMC.
Due to the fact that Commercial Metals Company (NYSE:CMC) has witnessed declining sentiment from the smart money, it’s safe to say that there was a specific group of hedge funds that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Alexander Mitchell’s Scopus Asset Management said goodbye to the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $16.3 million in stock, and Chuck Royce’s Royce & Associates was right behind this move, as the fund cut about $6.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Commercial Metals Company (NYSE:CMC) but similarly valued. These stocks are FirstCash, Inc. (NASDAQ:FCFS), HB Fuller Co (NYSE:FUL), Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), Tri Pointe Group Inc (NYSE:TPH), UMB Financial Corporation (NASDAQ:UMBF), Park Hotels & Resorts Inc. (NYSE:PK), and Cornerstone OnDemand, Inc. (NASDAQ:CSOD). This group of stocks’ market valuations resemble CMC’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 20 hedge funds with bullish positions and the average amount invested in these stocks was $187 million. That figure was $103 million in CMC’s case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is the least popular one with only 14 bullish hedge fund positions. Commercial Metals Company (NYSE:CMC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CMC is 42.9. 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. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately CMC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CMC investors were disappointed as the stock returned -0.5% since the end of September (through 12/14) 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 2020.
Disclosure: None. This article was originally published at Insider Monkey.