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Where Do Hedge Funds Stand On United States Steel Corporation (X)?

Abigail Fisher
·6 min read

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 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider United States Steel Corporation (NYSE:X) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Is United States Steel Corporation (NYSE:X) a buy right now? Prominent investors were betting on the stock. The number of long hedge fund positions went up by 1 recently. United States Steel Corporation (NYSE:X) was in 21 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 40. Our calculations also showed that X isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 20 hedge funds in our database with X positions at the end of the second quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 66 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 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.

Jonathan Barrett Luminus Management
Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 let's view the key hedge fund action encompassing United States Steel Corporation (NYSE:X).

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

Heading into the fourth quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in X a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in United States Steel Corporation (NYSE:X). Citadel Investment Group has a $20 million call position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Millennium Management, led by Israel Englander, holding a $13.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions comprise D. E. Shaw's D E Shaw, Steve Cohen's Point72 Asset Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to United States Steel Corporation (NYSE:X), around 0.81% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, earmarking 0.63 percent of its 13F equity portfolio to X.

As aggregate interest increased, key hedge funds have been driving this bullishness. Millennium Management, managed by Israel Englander, created the most outsized position in United States Steel Corporation (NYSE:X). Millennium Management had $13.7 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $12 million position during the quarter. The following funds were also among the new X investors: Jonathan Barrett and Paul Segal's Luminus Management, Dmitry Balyasny's Balyasny Asset Management, and Greg Eisner's Engineers Gate Manager.

Let's go over hedge fund activity in other stocks similar to United States Steel Corporation (NYSE:X). These stocks are Group 1 Automotive, Inc. (NYSE:GPI), Hostess Brands, Inc. (NASDAQ:TWNK), Rent-A-Center Inc (NASDAQ:RCII), Noah Holdings Limited (NYSE:NOAH), 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), Forward Air Corporation (NASDAQ:FWRD), and Sandstorm Gold Ltd. (NYSE:SAND). All of these stocks' market caps resemble X's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GPI,24,214897,3 TWNK,30,204785,6 RCII,25,321966,6 NOAH,16,342412,-2 FLWS,23,144100,0 FWRD,15,118716,0 SAND,13,118878,-3 Average,20.9,209393,1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $209 million. That figure was $72 million in X's case. Hostess Brands, Inc. (NASDAQ:TWNK) is the most popular stock in this table. On the other hand Sandstorm Gold Ltd. (NYSE:SAND) is the least popular one with only 13 bullish hedge fund positions. United States Steel Corporation (NYSE:X) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for X is 45.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on X as the stock returned 135.4% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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