A M Castle and Co (CAS): Hedge Funds and Insiders Are Bullish, What Should You Do?

A M Castle and Co (NYSE:CAS) was in 10 hedge funds’ portfolio at the end of the first quarter of 2013. CAS shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. There were 7 hedge funds in our database with CAS positions at the end of the previous quarter.

In the eyes of most market participants, hedge funds are assumed to be underperforming, old financial tools of years past. While there are more than 8000 funds in operation at present, we choose to focus on the aristocrats of this group, close to 450 funds. It is widely believed that this group has its hands on the majority of the hedge fund industry’s total capital, and by tracking their top investments, we have spotted a few investment strategies that have historically outperformed Mr. Market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Just as integral, positive insider trading sentiment is a second way to break down the stock market universe. There are a number of motivations for an insider to drop shares of his or her company, but just one, very obvious reason why they would behave bullishly. Many academic studies have demonstrated the market-beating potential of this method if investors understand where to look (learn more here).

With these “truths” under our belt, it’s important to take a glance at the latest action encompassing A M Castle and Co (NYSE:CAS).

Hedge fund activity in A M Castle and Co (NYSE:CAS)

At the end of the first quarter, a total of 10 of the hedge funds we track were long in this stock, a change of 43% from the first quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully.

Of the funds we track, Joel Ramin’s 12 West Capital Management had the largest position in A M Castle and Co (NYSE:CAS), worth close to $34.1 million, accounting for 5.8% of its total 13F portfolio. The second largest stake is held by Nokota Management, managed by Matthew Knauer and Mina Faltas, which held a $22.4 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Some other hedgies that are bullish include Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, Michael Price’s MFP Investors and Chuck Royce’s Royce & Associates.

Consequently, key hedge funds were leading the bulls’ herd. 12 West Capital Management, managed by Joel Ramin, created the biggest position in A M Castle and Co (NYSE:CAS). 12 West Capital Management had 34.1 million invested in the company at the end of the quarter. Robert Jaffe’s Force Capital also initiated a $4.8 million position during the quarter. The other funds with brand new CAS positions are Cliff Asness’s AQR Capital Management, Israel Englander’s Millennium Management, and Matthew Hulsizer’s PEAK6 Capital Management.

What have insiders been doing with A M Castle and Co (NYSE:CAS)?

Insider purchases made by high-level executives is particularly usable when the primary stock in question has seen transactions within the past half-year. Over the last 180-day time period, A M Castle and Co (NYSE:CAS) has seen 1 unique insiders buying, and 2 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to A M Castle and Co (NYSE:CAS). These stocks are Graham Corporation (NYSEAMEX:GHM), Olympic Steel, Inc. (NASDAQ:ZEUS), Tower International Inc (NYSE:TOWR), Gulf Island Fabrication, Inc. (NASDAQ:GIFI), and Park-Ohio Holdings Corp. (NASDAQ:PKOH). This group of stocks belong to the metal fabrication industry and their market caps are closest to CAS’s market cap.