How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Cleveland-Cliffs Inc (NYSE:CLF) and determine whether hedge funds had an edge regarding this stock.
Is Cleveland-Cliffs Inc (NYSE:CLF) a good investment today? Hedge funds were selling. The number of long hedge fund positions retreated by 9 lately. Cleveland-Cliffs Inc (NYSE:CLF) was in 35 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 44. Our calculations also showed that CLF isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 44 hedge funds in our database with CLF positions at the end of the second quarter.
Jeffrey Gendell of Tontine Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to view the key hedge fund action regarding Cleveland-Cliffs Inc (NYSE:CLF).
Do Hedge Funds Think CLF Is A Good Stock To Buy Now?
At the end of September, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the second quarter of 2021. By comparison, 22 hedge funds held shares or bullish call options in CLF a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cleveland-Cliffs Inc (NYSE:CLF) was held by Fisher Asset Management, which reported holding $249.5 million worth of stock at the end of September. It was followed by Tontine Asset Management with a $148.9 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and Iridian Asset Management. In terms of the portfolio weights assigned to each position Key Square Capital Management allocated the biggest weight to Cleveland-Cliffs Inc (NYSE:CLF), around 13.73% of its 13F portfolio. Tontine Asset Management is also relatively very bullish on the stock, dishing out 12.78 percent of its 13F equity portfolio to CLF.
Due to the fact that Cleveland-Cliffs Inc (NYSE:CLF) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of fund managers that decided to sell off their full holdings in the third quarter. At the top of the heap, William Harnisch’s Peconic Partners LLC dumped the biggest position of all the hedgies followed by Insider Monkey, comprising about $71.9 million in stock, and Ken Heebner’s Capital Growth Management was right behind this move, as the fund dropped about $20.5 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 9 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Cleveland-Cliffs Inc (NYSE:CLF). These stocks are Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH), Guidewire Software Inc (NYSE:GWRE), Hill-Rom Holdings, Inc. (NYSE:HRC), Intellia Therapeutics, Inc. (NASDAQ:NTLA), Levi Strauss & Co. (NYSE:LEVI), Chegg Inc (NYSE:CHGG), and Hubbell Incorporated (NYSE:HUBB). This group of stocks’ market caps are similar to CLF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NCLH | 36 | 502017 | -7 |
| GWRE | 26 | 2005849 | -1 |
| HRC | 46 | 1410210 | 24 |
| NTLA | 37 | 1620289 | -4 |
| LEVI | 26 | 225120 | -4 |
| CHGG | 39 | 514158 | 1 |
| HUBB | 18 | 571249 | 3 |
| Average | 32.6 | 978413 | 1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.6 hedge funds with bullish positions and the average amount invested in these stocks was $978 million. That figure was $682 million in CLF’s case. Hill-Rom Holdings, Inc. (NYSE:HRC) is the most popular stock in this table. On the other hand Hubbell Incorporated (NYSE:HUBB) is the least popular one with only 18 bullish hedge fund positions. Cleveland-Cliffs Inc (NYSE:CLF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CLF is 50.2. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, CLF wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CLF were disappointed as the stock returned -13.5% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.
Follow Cleveland-Cliffs Inc. (NYSE:CLF)
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Disclosure: None. This article was originally published at Insider Monkey.
