Should You Buy SunCoke Energy, Inc (SXC)?

It was a rough third quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 7% during the quarter. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by about 14 percentage points between June 25 and October 30, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards SunCoke Energy, Inc (NYSE:SXC) during the quarter below.

Hedge fund interest in SunCoke Energy, Inc (NYSE:SXC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Helix Energy Solutions Group Inc. (NYSE:HLX), Anworth Mortgage Asset Corporation (NYSE:ANH), and Nuveen Floating Rate Income Fund (NYSE:JFR) to gather more data points.

If you’d ask most market participants, hedge funds are viewed as worthless, old investment tools of years past. While there are over 8000 funds trading at the moment, Our experts hone in on the upper echelon of this club, about 700 funds. These investment experts orchestrate the lion’s share of the hedge fund industry’s total asset base, and by watching their best stock picks, Insider Monkey has come up with numerous investment strategies that have historically outrun the broader indices. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Keeping this in mind, let’s analyze the key action encompassing SunCoke Energy, Inc (NYSE:SXC).

Hedge fund activity in SunCoke Energy, Inc (NYSE:SXC)

Heading into Q4, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Michael Blitzer’s Kingstown Capital Management has the largest position in SunCoke Energy, Inc (NYSE:SXC), worth close to $33.1 million, amounting to 3.7% of its total 13F portfolio. Coming in second is West Face Capital, led by Greg Boland, holding a $29.7 million position; 12.3% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions consist of Nathaniel August’s Mangrove Partners, Israel Englander’s Millennium Management and Matthew Mark’s Jet Capital Investors.

It’s worth mentioning that Howard Guberman’s Gruss Asset Management cut the largest stake of the 700 funds watched by Insider Monkey, comprising about $29.4 million in stock. Michael M. Rothenberg’s fund, Moab Capital Partners, also dumped its stock, about $8.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to SunCoke Energy, Inc (NYSE:SXC). These stocks are Helix Energy Solutions Group Inc. (NYSE:HLX), Anworth Mortgage Asset Corporation (NYSE:ANH), Nuveen Floating Rate Income Fund (NYSE:JFR), and Boulder Brands Inc (NASDAQ:BDBD). This group of stocks’ market caps match SXC’s market cap.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $170 million in SXC’s case. Boulder Brands Inc (NASDAQ:BDBD) is the most popular stock in this table. On the other hand Nuveen Floating Rate Income Fund (NYSE:JFR) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks SunCoke Energy, Inc (NYSE:SXC) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.