Should You Avoid SunCoke Energy, Inc (SXC)?

In this article you are going to find out whether hedge funds think SunCoke Energy, Inc (NYSE:SXC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is SunCoke Energy, Inc (NYSE:SXC) a cheap investment right now? The smart money is in a bearish mood. The number of long hedge fund bets were trimmed by 3 recently. Our calculations also showed that SXC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). SXC was in 17 hedge funds’ portfolios at the end of March. There were 20 hedge funds in our database with SXC holdings at the end of the previous quarter.

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding SunCoke Energy, Inc (NYSE:SXC).

Hedge fund activity in SunCoke Energy, Inc (NYSE:SXC)

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the fourth quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in SXC a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is SXC A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Nathaniel August’s Mangrove Partners has the largest position in SunCoke Energy, Inc (NYSE:SXC), worth close to $22.3 million, corresponding to 3.1% of its total 13F portfolio. On Mangrove Partners’s heels is of Renaissance Technologies, with a $20.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions encompass Brett Hendrickson’s Nokomis Capital, Stephen Mildenhall’s Contrarius Investment Management and Jeffrey Gendell’s Tontine Asset Management. In terms of the portfolio weights assigned to each position Nokomis Capital allocated the biggest weight to SunCoke Energy, Inc (NYSE:SXC), around 4.4% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, designating 3.08 percent of its 13F equity portfolio to SXC.

Because SunCoke Energy, Inc (NYSE:SXC) has faced a decline in interest from hedge fund managers, logic holds that there exists a select few hedge funds that elected to cut their positions entirely in the first quarter. At the top of the heap, Mike Vranos’s Ellington dropped the largest investment of the 750 funds watched by Insider Monkey, comprising about $0.5 million in stock, and Hoon Kim’s Quantinno Capital was right behind this move, as the fund said goodbye to about $0.4 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 3 funds in the first quarter.

Let’s check out hedge fund activity in other stocks similar to SunCoke Energy, Inc (NYSE:SXC). We will take a look at Juniper Industrial Holdings, Inc. (NYSE:JIH), BeyondSpring, Inc. (NASDAQ:BYSI), Mitek Systems, Inc. (NASDAQ:MITK), and Surgery Partners, Inc. (NASDAQ:SGRY). This group of stocks’ market valuations match SXC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JIH 17 114884 1
BYSI 1 256 0
MITK 17 62636 -2
SGRY 10 30221 -1
Average 11.25 51999 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $67 million in SXC’s case. Juniper Industrial Holdings, Inc. (NYSE:JIH) is the most popular stock in this table. On the other hand BeyondSpring, Inc. (NASDAQ:BYSI) is the least popular one with only 1 bullish hedge fund positions. SunCoke Energy, Inc (NYSE:SXC) 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. 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 13.4% in 2020 through June 22nd but beat the market by 15.9 percentage points. Unfortunately SXC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SXC were disappointed as the stock returned -13.9% 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.