Is Commercial Metals Company (CMC) Worthy of Your Portfolio?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Commercial Metals Company (NYSE:CMC) .

Commercial Metals Company (NYSE:CMC) investors should be aware of a decrease in hedge fund sentiment in recent months. CMC was in 16 hedge funds’ portfolios at the end of September, compared to 18 funds tracked by us a quarter earlier. At the end of this article we will also compare CMC to other stocks including Marriott Vacations Worldwide Corp (NYSE:VAC), Simpson Manufacturing Co, Inc. (NYSE:SSD), and American Assets Trust, Inc (NYSE:AAT) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, we’re going to take a glance at the new action surrounding Commercial Metals Company (NYSE:CMC).

What does the smart money think about Commercial Metals Company (NYSE:CMC)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, down by 11% over the quarter. The graph below displays the number of hedge funds with bullish position in CMC over the last five quarters. So, let’s see 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, Cliff Asness’ AQR Capital Management holds the largest position in Commercial Metals Company (NYSE:CMC) which has a $72.4 million position in the stock. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, with a $26.9 million position. Remaining members of the smart money with similar optimism comprise Chuck Royce’s Royce & Associates, John Overdeck and David Siegel’s Two Sigma Advisors and Jim Simons’ Renaissance Technologies. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually sold off their positions entirely. Interestingly, Bruce Kovner’s Caxton Associates LP sold off the largest position of the 700 funds followed by Insider Monkey, valued at close to $6.9 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $3.4 million worth of shares.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Commercial Metals Company (NYSE:CMC) but similarly valued. These stocks are Marriott Vacations Worldwide Corp (NYSE:VAC), Simpson Manufacturing Co, Inc. (NYSE:SSD), American Assets Trust, Inc (NYSE:AAT), and Houghton Mifflin Harcourt Co (NASDAQ:HMHC). This group of stocks’ market valuations resemble CMC’s market valuation.

As you can see these stocks had an average of 11 funds with bullish positions and the average amount invested in these stocks was $259 million, compared to $146 million in CMC’s case. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is the most popular stock in this table. On the other hand American Assets Trust, Inc (NYSE:AAT) is the least popular one with only six bullish hedge fund positions. Commercial Metals Company (NYSE:CMC) 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. In this regard Houghton Mifflin Harcourt Co (NASDAQ:HMHC) might be a better candidate to consider taking a long position in.

Disclosure: None