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Hedge Fund Consensus Stocks vs. Cleveland-Cliffs Inc (CLF) In 2019

Debasis Saha

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Cleveland-Cliffs Inc (NYSE:CLF) and compare its performance to hedge funds' consensus picks in 2019.

Is Cleveland-Cliffs Inc (NYSE:CLF) a healthy stock for your portfolio? Money managers are becoming less confident. The number of bullish hedge fund positions dropped by 2 lately. Our calculations also showed that CLF 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). CLF was in 26 hedge funds' portfolios at the end of the third quarter of 2019. There were 28 hedge funds in our database with CLF positions at the end of the previous quarter.

In today’s marketplace there are plenty of metrics market participants have at their disposal to evaluate stocks. Two of the most innovative metrics are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the best hedge fund managers can outperform the market by a healthy amount (see the details here).

[caption id="attachment_26335" align="alignnone" width="600"] Ken Fisher of Fisher Asset Management[/caption]

Ken Fisher FISHER ASSET MANAGEMENT

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. With all of this in mind we're going to review the latest hedge fund action regarding Cleveland-Cliffs Inc (NYSE:CLF).

How have hedgies been trading Cleveland-Cliffs Inc (NYSE:CLF)?

At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CLF over the last 17 quarters. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Is CLF A Good Stock To Buy?

Among these funds, Fisher Asset Management held the most valuable stake in Cleveland-Cliffs Inc (NYSE:CLF), which was worth $98.3 million at the end of the third quarter. On the second spot was Contrarian Capital which amassed $76.2 million worth of shares. Bridgewater Associates, Citadel Investment Group, and Masters 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 Contrarian Capital allocated the biggest weight to Cleveland-Cliffs Inc (NYSE:CLF), around 6.95% of its 13F portfolio. Tegean Capital Management is also relatively very bullish on the stock, setting aside 4.29 percent of its 13F equity portfolio to CLF.

Seeing as Cleveland-Cliffs Inc (NYSE:CLF) has witnessed falling interest from the aggregate hedge fund industry, it's safe to say that there exists a select few funds who sold off their full holdings heading into Q4. At the top of the heap, Ross Turner's Pelham Capital dropped the biggest investment of the "upper crust" of funds tracked by Insider Monkey, totaling an estimated $22.7 million in stock. Todd J. Kantor's fund, Encompass Capital Advisors, also cut its stock, about $20.2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q4.

Let's now review hedge fund activity in other stocks similar to Cleveland-Cliffs Inc (NYSE:CLF). We will take a look at PennyMac Mortgage Investment Trust (NYSE:PMT), Banner Corporation (NASDAQ:BANR), JELD-WEN Holding, Inc. (NYSE:JELD), and SJW Corp. (NYSE:SJW). This group of stocks' market valuations are closest to CLF's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PMT,13,74959,-1 BANR,13,78632,-3 JELD,14,284352,-2 SJW,19,175295,4 Average,14.75,153310,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $297 million in CLF's case. SJW Corp. (NYSE:SJW) is the most popular stock in this table. On the other hand PennyMac Mortgage Investment Trust (NYSE:PMT) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Cleveland-Cliffs Inc (NYSE:CLF) is more popular among hedge funds. 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 CLF wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CLF were disappointed as the stock returned 12.7% 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 outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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