Were Hedge Funds Right About Piling Into Cleveland-Cliffs Inc (CLF)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Cleveland-Cliffs Inc (NYSE:CLF)? The smart money sentiment can provide an answer to this question.

Cleveland-Cliffs Inc (NYSE:CLF) has experienced an increase in enthusiasm from smart money in recent months. Cleveland-Cliffs Inc (NYSE:CLF) was in 44 hedge funds’ portfolios at the end of June. The all time high for this statistic was previously 36. This means the bullish number of hedge fund positions in this stock currently sits at its new all time high. Our calculations also showed that CLF isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Jeffrey Gendell of Tontine Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 we’re going to take a glance at the key hedge fund action encompassing Cleveland-Cliffs Inc (NYSE:CLF).

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

At second quarter’s end, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CLF over the last 24 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Cleveland-Cliffs Inc (NYSE:CLF) was held by Fisher Asset Management, which reported holding $275.9 million worth of stock at the end of June. It was followed by Tontine Asset Management with a $144 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and LMR Partners. In terms of the portfolio weights assigned to each position Tontine Asset Management allocated the biggest weight to Cleveland-Cliffs Inc (NYSE:CLF), around 12.76% of its 13F portfolio. Peconic Partners LLC is also relatively very bullish on the stock, earmarking 7.19 percent of its 13F equity portfolio to CLF.

As industrywide interest jumped, key money managers have jumped into Cleveland-Cliffs Inc (NYSE:CLF) headfirst. Iridian Asset Management, managed by David Cohen and Harold Levy, established the most outsized position in Cleveland-Cliffs Inc (NYSE:CLF). Iridian Asset Management had $77.1 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $22.6 million position during the quarter. The following funds were also among the new CLF investors: Ken Heebner’s Capital Growth Management, Jos Shaver’s Electron Capital Partners, and Steve Zheng’s Deepcurrents Investment Group.

Let’s also examine hedge fund activity in other stocks similar to Cleveland-Cliffs Inc (NYSE:CLF). We will take a look at Maravai LifeSciences Holdings, Inc. (NASDAQ:MRVI), Marathon Oil Corporation (NYSE:MRO), PRA Health Sciences Inc (NASDAQ:PRAH), The Scotts Miracle-Gro Company (NYSE:SMG), Deckers Outdoor Corp (NYSE:DECK), ChargePoint Holdings, Inc. (NYSE:CHPT), and ironSource Ltd. (NYSE:IS). All of these stocks’ market caps are closest to CLF’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.7 hedge funds with bullish positions and the average amount invested in these stocks was $998 million. That figure was $1111 million in CLF’s case. Deckers Outdoor Corp (NYSE:DECK) is the most popular stock in this table. On the other hand ChargePoint Holdings, Inc. (NYSE:CHPT) is the least popular one with only 17 bullish hedge fund positions. Cleveland-Cliffs Inc (NYSE:CLF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CLF is 90. 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 positive signal but 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 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately CLF wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CLF were disappointed as the stock returned 3.7% since the end of June (through 11/5) 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 many of these stocks already outperformed the market since 2019.

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