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Should You Buy Commercial Metals Company (CMC)?

The 700+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Commercial Metals Company (NYSE:CMC).

Hedge fund interest in Commercial Metals Company (NYSE:CMC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Diodes Incorporated (NASDAQ:DIOD), Renasant Corporation (NASDAQ:RNST), and LTC Properties Inc (NYSE:LTC) to gather more data points. Our calculations also showed that CMC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management

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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the new hedge fund action surrounding Commercial Metals Company (NYSE:CMC).

How are hedge funds trading Commercial Metals Company (NYSE:CMC)?

At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in CMC a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

The largest stake in Commercial Metals Company (NYSE:CMC) was held by Citadel Investment Group, which reported holding $90.8 million worth of stock at the end of September. It was followed by Highline Capital Management with a $39.2 million position. Other investors bullish on the company included Luminus Management, Millennium Management, and D E Shaw. In terms of the portfolio weights assigned to each position Highline Capital Management allocated the biggest weight to Commercial Metals Company (NYSE:CMC), around 5.72% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, dishing out 0.81 percent of its 13F equity portfolio to CMC.

Judging by the fact that Commercial Metals Company (NYSE:CMC) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of money managers that decided to sell off their full holdings in the third quarter. It’s worth mentioning that Andrew Kurita’s Kettle Hill Capital Management cut the biggest position of the “upper crust” of funds followed by Insider Monkey, valued at about $7.8 million in stock. Zilvinas Mecelis’s fund, Covalis Capital, also sold off its stock, about $5.7 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

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 Diodes Incorporated (NASDAQ:DIOD), Renasant Corporation (NASDAQ:RNST), LTC Properties Inc (NYSE:LTC), and WesBanco, Inc. (NASDAQ:WSBC). All of these stocks’ market caps match CMC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DIOD 21 71352 3
RNST 8 22648 -3
LTC 9 15502 -3
WSBC 10 54038 0
Average 12 40885 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $233 million in CMC’s case. Diodes Incorporated (NASDAQ:DIOD) is the most popular stock in this table. On the other hand Renasant Corporation (NASDAQ:RNST) is the least popular one with only 8 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 calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CMC as the stock returned 23.6% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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