While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and optimism towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the first quarter and hedging or reducing many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Schnitzer Steel Industries, Inc. (NASDAQ:SCHN).
Is Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) undervalued? Hedge funds are in a bearish mood. The number of bullish hedge fund bets retreated by 4 in recent months. Our calculations also showed that SCHN isn't among the 30 most popular stocks among hedge funds. SCHN was in 14 hedge funds' portfolios at the end of March. There were 18 hedge funds in our database with SCHN holdings at the end of the previous quarter.
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.
Let's take a look at the fresh hedge fund action regarding Schnitzer Steel Industries, Inc. (NASDAQ:SCHN).
How have hedgies been trading Schnitzer Steel Industries, Inc. (NASDAQ:SCHN)?
Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards SCHN over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Schnitzer Steel Industries, Inc. (NASDAQ:SCHN), which was worth $10.6 million at the end of the first quarter. On the second spot was Vertex One Asset Management which amassed $6.2 million worth of shares. Moreover, AQR Capital Management, Royce & Associates, and Citadel Investment Group were also bullish on Schnitzer Steel Industries, Inc. (NASDAQ:SCHN), allocating a large percentage of their portfolios to this stock.
Due to the fact that Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) has experienced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few funds that slashed their entire stakes by the end of the third quarter. Interestingly, David Costen Haley's HBK Investments said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, totaling close to $0.8 million in stock, and Minhua Zhang's Weld Capital Management was right behind this move, as the fund sold off about $0.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks similar to Schnitzer Steel Industries, Inc. (NASDAQ:SCHN). These stocks are Twist Bioscience Corporation (NASDAQ:TWST), China Yuchai International Limited (NYSE:CYD), CIRCOR International, Inc. (NYSE:CIR), and Blue Hills Bancorp Inc (NASDAQ:BHBK). This group of stocks' market valuations resemble SCHN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TWST,3,18918,-1 CYD,9,71096,1 CIR,7,145026,1 BHBK,9,27123,2 Average,7,65541,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $28 million in SCHN's case. China Yuchai International Limited (NYSE:CYD) is the most popular stock in this table. On the other hand Twist Bioscience Corporation (NASDAQ:TWST) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately SCHN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SCHN were disappointed as the stock returned 1.3% 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.