POSCO (PKX): Hedge Fund Sentiment Unchanged

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

POSCO (NYSE:PKX) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of September. At the end of this article we will also compare PKX to other stocks including Wisconsin Energy Group, Inc. (NYSE:WEC), Waste Connections, Inc. (NYSE:WCN), and Hormel Foods Corporation (NYSE:HRL) to get a better sense of its popularity.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Prem Watsa, Fairfax Financial Holdings

We’re going to analyze the fresh hedge fund action encompassing POSCO (NYSE:PKX).

Hedge fund activity in POSCO (NYSE:PKX)

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, representing no change from the second quarter of 2018. By comparison, 16 hedge funds held shares or bullish call options in PKX heading into this year. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions)

No of Hedge Funds with PKX Positions

More specifically, Arrowstreet Capital was the largest shareholder of POSCO (NYSE:PKX), with a stake worth $72.7 million reported as of the end of September. Trailing Arrowstreet Capital was LMR Partners, which amassed a stake valued at $38 million. Fairfax Financial Holdings, Pzena Investment Management, and Segantii Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as POSCO (NYSE:PKX) has witnessed a decline in interest from the smart money, we can see that there was a specific group of hedgies that slashed their full holdings in the third quarter. Interestingly, John Horseman’s Horseman Capital Management dumped the biggest position of all the hedgies monitored by Insider Monkey, comprising close to $23.5 million in call options, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund dropped about $0.8 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as POSCO (NYSE:PKX) but similarly valued. We will take a look at Wisconsin Energy Group, Inc. (NYSE:WEC), Waste Connections, Inc. (NYSE:WCN), Hormel Foods Corporation (NYSE:HRL), and Ameriprise Financial, Inc. (NYSE:AMP). This group of stocks’ market valuations match PKX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WEC 19 357766 4
WCN 30 1002797 -4
HRL 12 66675 -1
AMP 33 1293396 3
Average 23.5 680159 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $680 million. That figure was $158 million in PKX’s case. Ameriprise Financial, Inc. (NYSE:AMP) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 12 bullish hedge fund positions. POSCO (NYSE:PKX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard AMP might be a better candidate to consider a long position.

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