Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before 2018's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Nucor Corporation (NYSE:NUE) changed recently.
Nucor Corporation (NYSE:NUE) was in 26 hedge funds' portfolios at the end of September. NUE has seen an increase in support from the world's most elite money managers of late. There were 22 hedge funds in our database with NUE holdings at the end of the previous quarter. Our calculations also showed that NUE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]
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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we're going to analyze the recent hedge fund action regarding Nucor Corporation (NYSE:NUE).
What does smart money think about Nucor Corporation (NYSE:NUE)?
Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NUE over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Nucor Corporation (NYSE:NUE), with a stake worth $43.3 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $35.7 million. Adage Capital Management, Fisher Asset Management, and Citadel Investment Group 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 DSAM Partners allocated the biggest weight to Nucor Corporation (NYSE:NUE), around 0.48% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, earmarking 0.26 percent of its 13F equity portfolio to NUE.
As aggregate interest increased, key hedge funds have been driving this bullishness. DSAM Partners, managed by Guy Shahar, assembled the biggest position in Nucor Corporation (NYSE:NUE). DSAM Partners had $2.5 million invested in the company at the end of the quarter. Louis Bacon's Moore Global Investments also made a $2 million investment in the stock during the quarter. The following funds were also among the new NUE investors: David Costen Haley's HBK Investments, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, and Bruce Kovner's Caxton Associates.
Let's also examine hedge fund activity in other stocks similar to Nucor Corporation (NYSE:NUE). These stocks are W.P. Carey Inc. REIT (NYSE:WPC), Apollo Global Management LLC (NYSE:APO), TransUnion (NYSE:TRU), and PagSeguro Digital Ltd. (NYSE:PAGS). This group of stocks' market caps resemble NUE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WPC,14,38560,-2 APO,24,1733222,1 TRU,34,1040934,4 PAGS,35,1381252,5 Average,26.75,1048492,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $1048 million. That figure was $167 million in NUE's case. PagSeguro Digital Ltd. (NYSE:PAGS) is the most popular stock in this table. On the other hand W.P. Carey Inc. REIT (NYSE:WPC) is the least popular one with only 14 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately NUE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NUE investors were disappointed as the stock returned 11.8% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019. 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.