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United States Steel Corporation (X): Are Hedge Funds Right About This Stock?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The one and a half month time period since the end of the third quarter is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of United States Steel Corporation (NYSE:X).

Is United States Steel Corporation (NYSE:X) a buy here? The smart money is buying. The number of long hedge fund bets went up by 2 recently. Our calculations also showed that X isn’t among the 30 most popular stocks among hedge funds. X was in 32 hedge funds’ portfolios at the end of September. There were 30 hedge funds in our database with X holdings at the end of the previous quarter.

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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CITADEL INVESTMENT GROUP

Let’s take a look at the fresh hedge fund action encompassing United States Steel Corporation (NYSE:X).

How are hedge funds trading United States Steel Corporation (NYSE:X)?

Heading into the fourth quarter of 2018, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards X over the last 13 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

X_dec2018

The largest stake in United States Steel Corporation (NYSE:X) was held by Citadel Investment Group, which reported holding $138.5 million worth of stock at the end of September. It was followed by Luminus Management with a $101.9 million position. Other investors bullish on the company included Pelham Capital, Citadel Investment Group, and Slate Path Capital.

As industrywide interest jumped, some big names have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the biggest position in United States Steel Corporation (NYSE:X). Marshall Wace LLP had $10.4 million invested in the company at the end of the quarter. Deepak Gulati’s Argentiere Capital also made a $3.8 million investment in the stock during the quarter. The following funds were also among the new X investors: ZilvinasáMecelis’s Covalis Capital, Sara Nainzadeh’s Centenus Global Management, and Barry Rosenstein’s JANA Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as United States Steel Corporation (NYSE:X) but similarly valued. We will take a look at First Citizens BancShares Inc. (NASDAQ:FCNCA), RenaissanceRe Holdings Ltd. (NYSE:RNR), Elbit Systems Ltd. (NASDAQ:ESLT), and ITT Inc. (NYSE:ITT). This group of stocks’ market valuations resemble X’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FCNCA 19 258819 -1
RNR 20 478444 4
ESLT 2 15993 -1
ITT 19 337779 -4
Average 15 272759 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $636 million in X’s case. RenaissanceRe Holdings Ltd. (NYSE:RNR) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks United States Steel Corporation (NYSE:X) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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