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Should I Buy Cleveland-Cliffs Inc (CLF)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Cleveland-Cliffs Inc (NYSE:CLF) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Cleveland-Cliffs Inc (NYSE:CLF) has experienced an increase in hedge fund sentiment recently. Cleveland-Cliffs Inc (NYSE:CLF) was in 25 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. Our calculations also showed that CLF isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Driehaus of Driehaus Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we’re going to go over the latest hedge fund action encompassing Cleveland-Cliffs Inc (NYSE:CLF).

Hedge fund activity in Cleveland-Cliffs Inc (NYSE:CLF)

At Q2’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. By comparison, 28 hedge funds held shares or bullish call options in CLF a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is CLF A Good Stock To Buy?

More specifically, Fisher Asset Management was the largest shareholder of Cleveland-Cliffs Inc (NYSE:CLF), with a stake worth $70.7 million reported as of the end of September. Trailing Fisher Asset Management was LMR Partners, which amassed a stake valued at $27.2 million. Citadel Investment Group, D E Shaw, and Royce & Associates 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 Aequim Alternative Investments allocated the biggest weight to Cleveland-Cliffs Inc (NYSE:CLF), around 1.19% of its 13F portfolio. LMR Partners is also relatively very bullish on the stock, earmarking 0.68 percent of its 13F equity portfolio to CLF.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, initiated the most valuable position in Cleveland-Cliffs Inc (NYSE:CLF). LMR Partners had $27.2 million invested in the company at the end of the quarter. Todd J. Kantor’s Encompass Capital Advisors also initiated a $5 million position during the quarter. The other funds with brand new CLF positions are Richard Driehaus’s Driehaus Capital, Noam Gottesman’s GLG Partners, and Greg Poole’s Echo Street Capital Management.

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 Progyny, Inc. (NASDAQ:PGNY), Primo Water Corporation (NYSE:PRMW), Shake Shack Inc (NYSE:SHAK), New Fortress Energy LLC (NASDAQ:NFE), Kennedy-Wilson Holdings Inc (NYSE:KW), Stepan Company (NYSE:SCL), and Afya Limited (NASDAQ:AFYA). This group of stocks’ market values resemble CLF’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PGNY 19 64397 9
PRMW 31 624565 -5
SHAK 22 458714 0
NFE 5 24818 3
KW 14 350773 -8
SCL 15 51618 5
AFYA 6 48743 -2
Average 16 231947 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $162 million in CLF’s case. Primo Water Corporation (NYSE:PRMW) is the most popular stock in this table. On the other hand New Fortress Energy LLC (NASDAQ:NFE) 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 66.9. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately CLF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CLF were disappointed as the stock returned 6.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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