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Is CMC Stock A Buy or Sell?

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·5 min read
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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the fourth quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Commercial Metals Company (NYSE:CMC) based on that data.

Is CMC stock a buy? Commercial Metals Company (NYSE:CMC) investors should be aware of an increase in activity from the world's largest hedge funds recently. Commercial Metals Company (NYSE:CMC) was in 23 hedge funds' portfolios at the end of December. The all time high for this statistic is 27. Our calculations also showed that CMC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Harding
David Harding

David Harding of Winton Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we're going to take a look at the recent hedge fund action surrounding Commercial Metals Company (NYSE:CMC).

Do Hedge Funds Think CMC Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CMC over the last 22 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey's hedge fund database, D. E. Shaw's D E Shaw has the number one position in Commercial Metals Company (NYSE:CMC), worth close to $43.7 million, corresponding to less than 0.1%% of its total 13F portfolio. On D E Shaw's heels is Cliff Asness of AQR Capital Management, with a $37.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Renaissance Technologies, Dan Rasmussen's Verdad Advisers and Joel Greenblatt's Gotham Asset Management. In terms of the portfolio weights assigned to each position Verdad Advisers allocated the biggest weight to Commercial Metals Company (NYSE:CMC), around 3.25% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, dishing out 0.93 percent of its 13F equity portfolio to CMC.

As one would reasonably expect, key hedge funds were breaking ground themselves. Verdad Advisers, managed by Dan Rasmussen, initiated the most valuable position in Commercial Metals Company (NYSE:CMC). Verdad Advisers had $8.6 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $0.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner's Engineers Gate Manager, David Harding's Winton Capital Management, and Paul Marshall and Ian Wace's Marshall Wace LLP.

Let's now review hedge fund activity in other stocks similar to Commercial Metals Company (NYSE:CMC). These stocks are United Community Banks Inc (NASDAQ:UCBI), Pulmonx Corporation (NASDAQ:LUNG), Pebblebrook Hotel Trust (NYSE:PEB), Teradata Corporation (NYSE:TDC), ADC Therapeutics SA (NYSE:ADCT), Matson Inc. (NYSE:MATX), and SPX FLOW, Inc. (NYSE:FLOW). This group of stocks' market caps resemble CMC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UCBI,11,43626,-2 LUNG,22,259745,22 PEB,16,65718,7 TDC,26,319579,-7 ADCT,12,319410,-7 MATX,14,13500,5 FLOW,12,185091,-1 Average,16.1,172381,2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $172 million. That figure was $118 million in CMC's case. Teradata Corporation (NYSE:TDC) is the most popular stock in this table. On the other hand United Community Banks Inc (NASDAQ:UCBI) is the least popular one with only 11 bullish hedge fund positions. Commercial Metals Company (NYSE:CMC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CMC is 73.6. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on CMC as the stock returned 43.4% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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