This Is How Hedgies Have Geared Up for the Steel Industry’s Turnaround

Global steel prices reached their nadir last year owing to a supply glut and dwindling demand, especially from China. However, towards the end of 2015 the world’s second-largest economy started to shut down steel factories as opposed to its previous strategy of simply flooding international markets with excess steel. Furthermore, the U.S recently announced a 266% tariff on steel imports from China. This has led analysts including Credit Suisse’s Curt Woodworth to issue a bullish 2016 outlook for the U.S Steel Sector. In order to give our readers the best chance to profit from the potential upswing in steel stocks we have compiled a list of the top steel equities among the nearly 800 top investors in our database.

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. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).

#5 Gibraltar Industries Inc (NASDAQ:ROCK)

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

 – Aggregate Value of Investors’ Holdings (as of December 31): $133.30 Million

The number of hedge funds holding Gibraltar Industries Inc (NASDAQ:ROCK) in their portfolios fell by one during the fourth quarter, while the aggregate value of their investments rose slightly, by 1.4%. The stock price of the $809 million manufacturer of products for the building and industrial markets rose by 38% during the same period and is up by more than 57% over the last 12 months, defying the overall downswing in the industry. The company again showed strong results with its most recent financial report for the fourth quarter, beating both the top and bottom line estimates. Jim Simons‘ managed futures fund Renaissance Technologies doubled its stake in Gibraltar Industries Inc (NASDAQ:ROCK) in the fourth trimester to about 951,000 shares.

#4 Nucor Corporation (NYSE:NUE)

 – Investors with Long Positions (as of December 31): 20

 – Aggregate Value of Investors’ Holdings (as of December 31): $301.41 Million

Nucor is another steel manufacturer that has been on the rise lately, as its stock has gained more than 12% so far this year. Even though the total number of hedgies long Nucor Corporation (NYSE:NUE) fell by five during the October-to-December period, the aggregate value of their investments shot up by 22%. Even though the company believes that its profitability for fiscal year 2016 will show slight improvement over the previous fiscal year, it recently issued muted guidance, with it now expecting EPS to fall in the $0.23-to-$0.28 range compared to analysts’ estimate of $0.32. Steve Cohen‘s Point72 Asia (Singapore) filed a 13F for the first time for the fourth quarter reporting period, which showed that it holds a position in Nucor Corporation (NYSE:NUE) of 1.00 million shares as of December 31.

Hedge funds’ top three steel stock picks are revealed on the next page.

#3 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

The number of hedge funds invested in United States Steel Corporation (NYSE:X) fell by three, while the value of their collective investments slipped by about 32% in the October-to-December period, during which time the company’s stock price plunged by more than 23%. However, so far this year shares of United States Steel have almost doubled in value, riding high on the thesis of recovery in heavy construction. More than 88% of the company’s outstanding shares are held by institutions according to Thomson Reuters, including 5.7% of which are held by funds in our database. Luminus Management, which is led by Jonathan Barrett and Paul Segal acquired 2.14 million shares of United States Steel Corporation (NYSE:X) during the fourth trimester.

#2 Commercial Metals Company (NYSE:CMC)

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

 – Aggregate Value of Investors’ Holdings (as of December 31): $95.65 Million

Shares of the $2 billion manufacturer of steel products rose by a meager 1% during the December quarter, during which time the net number of hedgies bullish on the company increased by two and their aggregate investments rose by about 8%. On a year-to-date basis, Commercial Metals Company (NYSE:CMC)’s stock price has sky rocketed by about 23.5%, despite the company missing top line estimates in its financial results for the first quarter of fiscal year 2016 ending November 30. However, quarterly EPS of $0.22 was in-line with expectations. Margins in the Americas Mills segment improved compared to the same quarter a year ago, as finished steel prices declined at a slower pace than ferrous scrap prices, though many other segments performed poorly because of the steel import activity in the U.S. Cliff Asness‘ AQR Capital Management upped its stake in Commercial Metals Company (NYSE:CMC) by 69% to 2.66 million shares during the fourth quarter.

#1 Steel Dynamics, Inc. (NASDAQ:STLD)

 – Investors with Long Positions (as of December 31): 28

 – Aggregate Value of Investors’ Holdings (as of December 31): $535.08 Million

The net number of hedge funds bullish on the company increased by four during the October-to-December period, though the aggregate value of their holdings dipped by 17% despite the stock gaining a little over 4% during the period. Steel Dynamics, Inc. (NASDAQ:STLD) has also risen sharply in 2016, similar to its peers mentioned above, posting more than 21% gains so far. Recently the company raised its dividend and announced that its first quarter financial results will come in well above expectations, primarily on the back of an increase in shipments of flat-roll products. Legg Mason Capital Management, now a part of ClearBridge, increased its stake in Steel Dynamics, Inc. (NASDAQ:STLD) by 2% to 4.87 million shares during the fourth trimester.

Disclosure: None