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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards United States Steel Corporation (NYSE:X).
Is X stock a buy? United States Steel Corporation (NYSE:X) investors should be aware of an increase in hedge fund interest of late. United States Steel Corporation (NYSE:X) was in 37 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 40. There were 21 hedge funds in our database with X holdings at the end of September. Our calculations also showed that X 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). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Kerr Neilson of Platinum Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy 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 gander at the new hedge fund action regarding United States Steel Corporation (NYSE:X).
Do Hedge Funds Think X Is A Good Stock To Buy Now?
At Q4's end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 76% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards X over the last 22 quarters. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, D E Shaw was the largest shareholder of United States Steel Corporation (NYSE:X), with a stake worth $110.7 million reported as of the end of December. Trailing D E Shaw was Aequim Alternative Investments, which amassed a stake valued at $53.4 million. Millennium Management, Platinum Asset Management, and OZ 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 Aequim Alternative Investments allocated the biggest weight to United States Steel Corporation (NYSE:X), around 3.94% of its 13F portfolio. Plaisance Capital is also relatively very bullish on the stock, earmarking 0.9 percent of its 13F equity portfolio to X.
There weren't any hedge funds initiating brand new positions in the stock during the fourth quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as United States Steel Corporation (NYSE:X) but similarly valued. These stocks are Grocery Outlet Holding Corp. (NASDAQ:GO), Agree Realty Corporation (NYSE:ADC), Avient Corporation (NYSE:AVNT), Alliance Data Systems Corporation (NYSE:ADS), Antero Midstream Corp (NYSE:AM), Progyny, Inc. (NASDAQ:PGNY), and Schneider National, Inc. (NYSE:SNDR). This group of stocks' market values match X's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GO,17,64145,-1 ADC,16,242520,0 AVNT,17,238126,-3 ADS,32,845846,-4 AM,19,141943,0 PGNY,24,233681,4 SNDR,20,126481,5 Average,20.7,270392,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.7 hedge funds with bullish positions and the average amount invested in these stocks was $270 million. That figure was $350 million in X's case. Alliance Data Systems Corporation (NYSE:ADS) is the most popular stock in this table. On the other hand Agree Realty Corporation (NYSE:ADC) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks United States Steel Corporation (NYSE:X) is more popular among hedge funds. Our overall hedge fund sentiment score for X is 87.8. 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 returned 7.9% in 2021 through April 1st but still managed to beat the market by 0.4 percentage points. Hedge funds were also right about betting on X as the stock returned 49.2% since the end of December (through 4/1) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.