Five Top-Performering Stocks Hedge Funds Overlooked

The first quarter of 2016 turned out to be a roller coaster ride for the broader market. While in the first -half of the quarter the indices were in a hurry to touch new lows, in the second-half they didn’t stop appreciating until they managed to recoup the losses suffered in the first-half. Amid all this volatility, most companies saw their stock moving from one extreme to another, only to end the quarter on a flat note. However, there were also a few companies whose stocks skyrocketed during the same period. Since enough has already been written about the stocks which plummeted heavily during the first quarter, in this post, we are going to buck the trend and focus on the top five performers of that period and also check out what the over 800 hedge funds we cover thought about these stocks while entering 2016.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 AngloGold Ashanti Limited (ADR) (NYSE:AU)

– Investors With Long Positions (as of December 31): 19

– Aggregate Value of Investors’ Holdings (as of December 31): $328.5 million

Owing largely to the rally of the gold price, shares of AngloGold Ashanti Limited (ADR) (NYSE:AU) managed to register gains of 92.8% in the first three months of 2016. It seems some hedge had already anticipated this move and that’s why the ownership of the company among funds covered by us increased by four during the October-December period. Notable investors, which initiated a stake in the company during the fourth quarter, included Billionaire Cliff Asness‘s AQR Capital Management, which purchased 226,481 shares of AngloGold Ashanti Limited (ADR)(NYSE:AU) during that period. For its fiscal 2015 fourth quarter, the company reported EPS of $0.16 on revenue of $1.06 billion, compared to a per share loss of $0.14 on revenue of $1.26 billion it had reported for the same quarter of the previous financial year. On March 8, analysts at RBC Capital downgraded the stock to ‘Sector Perform’ from ‘Outperform’.

#4 Teck Resources Ltd (USA) (NYSE:TCK)

– Investors With Long Positions (as of December 31): 15

– Aggregate Value of Investors’ Holdings (as of December 31): $34.83 million

Teck Resources Ltd (USA) (NYSE:TCK) faced the complete opposite fate of AngloGold Ashanti Limited during the last quarter of 2015 with the ownership of the company among funds covered by us declining by four during that period. Moreover, the aggregate value of investors’ holding in it also saw a decline of over 26% during the same time. Billionaire David E. Shaw‘s firm D.E. Shaw was one of the investors which reduced its stake in the company during the October-December period; it brought its holding down by 16% to 289,984 shares. Shares of Canada’s largest integrated mining company  started rallying on February 12 when it reported its fourth quarter numbers and ended the first quarter up by 97.15%. Since Teck Resources Ltd (USA)(NYSE:TCK)’s management took several cost-cutting measures and managed to bring down the production costs across all of its mines in 2015, most investors are optimistic about the company’s future. However, analysts think that going forward Teck Resources Ltd will perform well only if it manages to reduce its $9.6 billion debt burden.

#3 Companhia Siderurgica Nacional (ADR) (NYSE:SID)

– Investors With Long Positions (as of December 31): 4

– Aggregate Value of Investors’ Holdings (as of December 31): $3.39 million

Though Companhia Siderurgica Nacional (ADR) (NYSE:SID)’s stock appreciated by 101% in the first quarter of 2016, it is still trading down by almost 90% from its highs in April 2010. The number of investors covered by us with long positions in the company remained constant during the fourth quarter, however, the aggregate value of their holdings declined by $7.37 million. Billionaire Israel Englander‘s Millennium Management initiated a stake in Companhia Siderurgica Nacional (ADR) (NYSE:SID) during the last three months of 2015 by purchasing 197,080 shares and became its largest shareholder among the funds covered by us at the end of December. On March 29, Companhia Siderurgica Nacional reported its fourth-quarter numbers. Even though sales during the quarter fell by 3.7% year-over year, its profit soared to $654 million from $18.85 million that it had reported for the same quarter of the previous financial year.

#2 United States Steel Corporation (NYSE:X)

– Investors With Long Positions (as of December 31): 22

– Aggregate Value of Investors’ Holdings (as of December 31): $66.41 million

Despite its ownership among investors declining by three during the last quarter of 2015, United States Steel Corporation (NYSE:X) was the most popular stock in this list among hedge funds tracked by us going into 2016. AQR Capital Management will be really happy with its performance this year, since apart from initiating a stake in AngloGold Ashanti Limited, the fund also more than doubled its stake in United States Steel Corporation to almost 1.68 million shares during the fourth quarter. Almost the entire gain of 102.43% that United States Steel Corporation (NYSE:X)’s stock registered during the first quarter came in the month of March after the US announced a hefty anti-dumping duty on foreign steel producers. Though United States Steel Corporation (NYSE:X) and the US Steel industry as a whole welcomed this move, it wasn’t fully satisfied by it. That’s because the government imposed a 266% duty on Chinese steel imports, but the duty it levied on steel imports from other countries was pretty low in comparison. However, analysts think that this decision alone is enough for US steel producers to grow their market share significantly and improve their financial performance.

#1 Sibanye Gold Ltd (ADR) (NYSE:SBGL)

– Investors With Long Positions (as of December 31): 5

– Aggregate Value of Investors’ Holdings (as of December 31): $17.5 million

The three funds covered by us which sold off their entire stakes in Sibanye Gold Ltd (ADR) (NYSE:SBGL) during the October-December period might be regretting their decision this year. That’s because shares of the South Africa-based gold mining company have shot through the roof in 2016, appreciating by over 150% during the first quarter itself. Unlike other gold mining stocks, the reason behind Sibanye Gold Ltd (ADR) (NYSE:SBGL)’s up move is not the increase in gold prices alone, but the weakness in South African Rand (ZAR) since mid-January has also contributed significantly to the gains the stock has registered this year. However, a lot of analysts think that this rally might be soon coming to an end because the stock appears fully valued at current prices. On March 11, RBC Capital analyst Richard Hatch released a note to his client in which he reiterated his ‘Sector Perform’ rating on the stock. In the note, Mr. Hatch also highlighted that among the gold miners that operate in South Africa, Sibanye Gold Ltd’s stock is most at risk for a pullback since the company has 100% exposure to that country and there are chances that its soon-to-be-acquired platinum division can underperform. According to recent reports, Sibanye Gold Ltd will change its name to Sibanye Resources in the near future because its expanding its presence from gold to other commodities like platinum, coal and uranium.

Disclosure: None