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Were Hedge Funds Right About Nucor Corporation (NUE)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. One of the popular hedge fund picks is Nucor Corporation (NYSE:NUE), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is Nucor Corporation (NYSE:NUE) a superb investment today? The smart money is turning less bullish. The number of bullish hedge fund bets dropped by 2 recently. Our calculations also showed that NUE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). NUE was in 26 hedge funds’ portfolios at the end of December. There were 28 hedge funds in our database with NUE holdings at the end of the previous quarter.

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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the new hedge fund action surrounding Nucor Corporation (NYSE:NUE).

What have hedge funds been doing with Nucor Corporation (NYSE:NUE)?

At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the third quarter of 2019. On the other hand, there were a total of 26 hedge funds with a bullish position in NUE a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Nucor Corporation (NYSE:NUE), which was worth $71.4 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $64.9 million worth of shares. Citadel Investment Group, AQR Capital Management, and Adage Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position MIK Capital allocated the biggest weight to Nucor Corporation (NYSE:NUE), around 2.79% of its 13F portfolio. Arjuna Capital is also relatively very bullish on the stock, dishing out 0.41 percent of its 13F equity portfolio to NUE.

Due to the fact that Nucor Corporation (NYSE:NUE) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedgies who sold off their positions entirely by the end of the third quarter. At the top of the heap, Israel Englander’s Millennium Management cut the largest stake of all the hedgies watched by Insider Monkey, totaling close to $4.8 million in stock. Guy Shahar’s fund, DSAM Partners, also dumped its stock, about $2.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Nucor Corporation (NYSE:NUE). We will take a look at Healthpeak Properties, Inc. (NYSE:PEAK), Credicorp Ltd. (NYSE:BAP), Equifax Inc. (NYSE:EFX), and Check Point Software Technologies Ltd. (NASDAQ:CHKP). All of these stocks’ market caps are closest to NUE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PEAK 26 525191 -3
BAP 22 612424 -6
EFX 32 1615426 4
CHKP 30 626708 6
Average 27.5 844937 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $845 million. That figure was $237 million in NUE’s case. Equifax Inc. (NYSE:EFX) is the most popular stock in this table. On the other hand Credicorp Ltd. (NYSE:BAP) is the least popular one with only 22 bullish hedge fund positions. Nucor Corporation (NYSE:NUE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately NUE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NUE investors were disappointed as the stock returned -26.3% 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 most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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