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Here is What Hedge Funds Think About Steel Dynamics, Inc. (STLD)

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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Steel Dynamics, Inc. (NASDAQ:STLD) in this article.

Steel Dynamics, Inc. (NASDAQ:STLD) was in 23 hedge funds' portfolios at the end of September. The all time high for this statistic is 42. STLD has seen a decrease in activity from the world's largest hedge funds recently. There were 26 hedge funds in our database with STLD holdings at the end of June. Our calculations also showed that STLD isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Bruce Kovner, Caxton Associates LP
Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let's take a look at the recent hedge fund action encompassing Steel Dynamics, Inc. (NASDAQ:STLD).

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

At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. By comparison, 28 hedge funds held shares or bullish call options in STLD a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is STLD A Good Stock To Buy?
Is STLD A Good Stock To Buy?

More specifically, D E Shaw was the largest shareholder of Steel Dynamics, Inc. (NASDAQ:STLD), with a stake worth $112.6 million reported as of the end of September. Trailing D E Shaw was Millennium Management, which amassed a stake valued at $111.6 million. Citadel Investment Group, AQR Capital Management, and Balyasny Asset 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 Highline Capital Management allocated the biggest weight to Steel Dynamics, Inc. (NASDAQ:STLD), around 9.75% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, designating 0.47 percent of its 13F equity portfolio to STLD.

Seeing as Steel Dynamics, Inc. (NASDAQ:STLD) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of fund managers who sold off their entire stakes by the end of the third quarter. Intriguingly, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors said goodbye to the biggest stake of the "upper crust" of funds tracked by Insider Monkey, totaling an estimated $13.4 million in stock, and Alexander Mitchell's Scopus Asset Management was right behind this move, as the fund said goodbye to about $4.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 3 funds by the end of the third quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Steel Dynamics, Inc. (NASDAQ:STLD) but similarly valued. We will take a look at Marqeta Inc. (NASDAQ:MQ), Formula One Group (NASDAQ:FWONK), PulteGroup, Inc. (NYSE:PHM), Graco Inc. (NYSE:GGG), Allegion plc (NYSE:ALLE), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), and Qiagen NV (NASDAQ:QGEN). This group of stocks' market valuations are closest to STLD's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MQ,20,1100795,-15 FWONK,40,1901404,-1 PHM,35,771756,1 GGG,32,258259,8 ALLE,32,1002211,-5 KOF,6,460706,-3 QGEN,21,599491,-1 Average,26.6,870660,-2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.6 hedge funds with bullish positions and the average amount invested in these stocks was $871 million. That figure was $481 million in STLD's case. Formula One Group (NASDAQ:FWONK) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 6 bullish hedge fund positions. Steel Dynamics, Inc. (NASDAQ:STLD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for STLD is 43.4. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 31.1% in 2021 through December 9th and surpassed the market again by 5.1 percentage points. Unfortunately STLD wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); STLD investors were disappointed as the stock returned 4.4% since the end of September (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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