United States Steel Corporation (X) Fell Out Of Favor With Hedge Funds

In this article you are going to find out whether hedge funds think United States Steel Corporation (NYSE:X) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

United States Steel Corporation (NYSE:X) investors should pay attention to a decrease in enthusiasm from smart money in recent months. United States Steel Corporation (NYSE:X) was in 22 hedge funds’ portfolios at the end of March. 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 Q1 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

David E. Shaw of D.E. Shaw

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s take a look at the recent hedge fund action surrounding United States Steel Corporation (NYSE:X).

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

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -41% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards X over the last 23 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in United States Steel Corporation (NYSE:X), which was worth $292.6 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $103.6 million worth of shares. Citadel Investment Group, Slate Path Capital, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position 0 allocated the biggest weight to United States Steel Corporation (NYSE:X), around 5.84% of its 13F portfolio. 0 is also relatively very bullish on the stock, setting aside 3.17 percent of its 13F equity portfolio to X.

Because United States Steel Corporation (NYSE:X) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there is a sect of money managers who were dropping their full holdings last quarter. Interestingly, Highbridge Capital Management dumped the largest investment of the 750 funds followed by Insider Monkey, totaling an estimated $52.9 million in stock. Kerr Neilson’s fund, Platinum Asset Management, also dumped its stock, about $24.6 million worth. These transactions are important to note, as total hedge fund interest was cut by 15 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as United States Steel Corporation (NYSE:X) but similarly valued. These stocks are Vertiv Holdings Co (NYSE:VRT), Columbia Sportswear Company (NASDAQ:COLM), Toll Brothers Inc (NYSE:TOL), Prosperity Bancshares, Inc. (NYSE:PB), MasTec, Inc. (NYSE:MTZ), Mattel, Inc. (NASDAQ:MAT), and Grupo Aval Acciones y Valores S.A. (NYSE:AVAL). This group of stocks’ market values are closest to X’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $457 million. That figure was $636 million in X’s case. Vertiv Holdings Co (NYSE:VRT) is the most popular stock in this table. On the other hand Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is the least popular one with only 5 bullish hedge fund positions. United States Steel Corporation (NYSE:X) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for X is 31.5. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately X wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); X investors were disappointed as the stock returned -16.3% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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