At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Commercial Metals Company (NYSE:CMC) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Commercial Metals Company (NYSE:CMC) an excellent stock to buy now? Money managers were buying. The number of long hedge fund positions improved by 3 lately. Commercial Metals Company (NYSE:CMC) was in 22 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 27. Our calculations also showed that CMC 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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 let’s take a gander at the latest hedge fund action encompassing Commercial Metals Company (NYSE:CMC).
What does smart money think about Commercial Metals Company (NYSE:CMC)?
At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CMC over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Commercial Metals Company (NYSE:CMC), with a stake worth $55.6 million reported as of the end of September. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $27.6 million. D E Shaw, Scopus Asset Management, 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 Jade Capital Advisors allocated the biggest weight to Commercial Metals Company (NYSE:CMC), around 0.6% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, earmarking 0.5 percent of its 13F equity portfolio to CMC.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, initiated the largest position in Commercial Metals Company (NYSE:CMC). Point72 Asset Management had $4.1 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also made a $0.8 million investment in the stock during the quarter. The following funds were also among the new CMC investors: Michael Gelband’s ExodusPoint Capital, Qing Li’s Sciencast Management, and Ray Dalio’s Bridgewater Associates.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Commercial Metals Company (NYSE:CMC) but similarly valued. We will take a look at 2U Inc (NASDAQ:TWOU), Franklin Electric Co., Inc. (NASDAQ:FELE), Weingarten Realty Investors (NYSE:WRI), F.N.B. Corp (NYSE:FNB), Baozun Inc (NASDAQ:BZUN), ABM Industries, Inc. (NYSE:ABM), and Applied Industrial Technologies Inc (NYSE:AIT). This group of stocks’ market values are closest to CMC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TWOU | 24 | 285907 | 10 |
| FELE | 15 | 176038 | -1 |
| WRI | 19 | 86620 | -1 |
| FNB | 24 | 68816 | 0 |
| BZUN | 15 | 70738 | 3 |
| ABM | 21 | 49636 | 3 |
| AIT | 15 | 29147 | 1 |
| Average | 19 | 109557 | 2.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $154 million in CMC’s case. 2U Inc (NASDAQ:TWOU) is the most popular stock in this table. On the other hand Franklin Electric Co., Inc. (NASDAQ:FELE) is the least popular one with only 15 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. Our overall hedge fund sentiment score for CMC is 71.3. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately CMC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CMC were disappointed as the stock returned -1.5% in Q3 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.
Follow Commercial Metals Co (nk:CMC)
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Disclosure: None. This article was originally published at Insider Monkey.
