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Steel Excel Inc (SXCL): Are Hedge Funds Right About This Stock?

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.

Steel Excel Inc (NASDAQ:SXCL) investors should be aware of an increase in hedge fund sentiment recently. 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 W&T Offshore, Inc. (NYSE:WTI), Magnachip Semiconductor Corp (NYSE:MX), and Xactly Corp (NYSE:XTLY) to gather more data points.

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Now, we’re going to take a peek at the key action encompassing Steel Excel Inc (NASDAQ:SXCL).

What does the smart money think about Steel Excel Inc (NASDAQ:SXCL)?

At the Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 300% from the previous quarter. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Warren Lichtenstein’s Steel Partners has the biggest position in Steel Excel Inc (NASDAQ:SXCL), worth close to $131.9 million, amounting to 21.2% of its total 13F portfolio. The second largest stake is held by GAMCO Investors, led by Mario Gabelli, holding an $15.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that hold long positions comprise Paul Orlin and Alex Porter’s Amici Capital and Richard S. Pzena’s Pzena Investment Management.

Now, some big names were leading the bulls’ herd. Steel Partners initiated the biggest position in Steel Excel Inc (NASDAQ:SXCL). Mario Gabelli’s GAMCO Investors also initiated its stake during the quarter. The only other fund with a brand new SXCL position is Paul Orlin and Alex Porter’s Amici Capital.

Let’s go over hedge fund activity in other stocks similar to Steel Excel Inc (NASDAQ:SXCL). These stocks are W&T Offshore, Inc. (NYSE:WTI), Magnachip Semiconductor Corp (NYSE:MX), Xactly Corp (NYSE:XTLY), and Credit Suisse High Yield Bond Fund (ETF) (NYSEMKT:DHY). This group of stocks’ market valuations resemble SXCL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WTI 8 20485 -7
MX 21 130318 2
XTLY 4 10923 -6
DHY 4 2167 0

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was just $41 million, compared to $153 million in SXCL’s case. Magnachip Semiconductor Corp (NYSE:MX) is the most popular stock in this table. On the other hand Xactly Corp (NYSE:XTLY) is the least popular one with only 4 bullish hedge fund positions, the same as Steel Excel Inc (NASDAQ:SXCL). Therefore, it seems that smart money investors are not very fond of Steel Excel, compared to some of its market cap peers. It may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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