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Hedge Funds Have Never Been This Bullish On Cleveland-Cliffs Inc (CLF)

Reymerlyn Martin

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their March 31 holdings, data that is available nowhere else. Should you consider Cleveland-Cliffs Inc (NYSE:CLF) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Is Cleveland-Cliffs Inc (NYSE:CLF) a great investment right now? The smart money is turning bullish. The number of bullish hedge fund bets moved up by 6 lately. Our calculations also showed that CLF isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

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Let's analyze the latest hedge fund action regarding Cleveland-Cliffs Inc (NYSE:CLF).

How are hedge funds trading Cleveland-Cliffs Inc (NYSE:CLF)?

Heading into the second quarter of 2019, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the fourth quarter of 2018. By comparison, 23 hedge funds held shares or bullish call options in CLF a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CLF_jun2019

According to Insider Monkey's hedge fund database, Jon Bauer's Contrarian Capital has the biggest position in Cleveland-Cliffs Inc (NYSE:CLF), worth close to $108.2 million, comprising 9.6% of its total 13F portfolio. Coming in second is Fisher Asset Management, managed by Ken Fisher, which holds a $83.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that hold long positions include Ken Griffin's Citadel Investment Group, Robert Polak's Anchor Bolt Capital and Ross Turner's Pelham Capital.

As one would reasonably expect, key hedge funds have jumped into Cleveland-Cliffs Inc (NYSE:CLF) headfirst. OZ Management, managed by Daniel S. Och, created the largest position in Cleveland-Cliffs Inc (NYSE:CLF). OZ Management had $35.2 million invested in the company at the end of the quarter. Robert Polak's Anchor Bolt Capital also initiated a $29.4 million position during the quarter. The other funds with brand new CLF positions are Dmitry Balyasny's Balyasny Asset Management, Kevin Michael Ulrich and Anthony Davis's Anchorage Advisors, and Louis Bacon's Moore Global Investments.

Let's now take a look at hedge fund activity in other stocks similar to Cleveland-Cliffs Inc (NYSE:CLF). These stocks are NuStar Energy L.P. (NYSE:NS), Trinity Industries, Inc. (NYSE:TRN), John Bean Technologies Corporation (NYSE:JBT), and Cloudera, Inc. (NYSE:CLDR). This group of stocks' market values resemble CLF's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NS,1,1376,-1 TRN,28,700327,1 JBT,9,89833,0 CLDR,32,344581,6 Average,17.5,284029,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $284 million. That figure was $465 million in CLF's case. Cloudera, Inc. (NYSE:CLDR) is the most popular stock in this table. On the other hand NuStar Energy L.P. (NYSE:NS) is the least popular one with only 1 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 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 -11.4% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.

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

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