Hedge Funds Never Been Less Bullish On Olympic Steel, Inc. (ZEUS)
We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Olympic Steel, Inc. (NASDAQ:ZEUS) based on that data.
Olympic Steel, Inc. (NASDAQ:ZEUS) was in 5 hedge funds' portfolios at the end of the first quarter of 2020. ZEUS has seen a decrease in enthusiasm from smart money of late. There were 6 hedge funds in our database with ZEUS positions at the end of the previous quarter. Our calculations also showed that ZEUS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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. 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 51 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_193003" align="aligncenter" width="400"]
Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's review the latest hedge fund action surrounding Olympic Steel, Inc. (NASDAQ:ZEUS).
What have hedge funds been doing with Olympic Steel, Inc. (NASDAQ:ZEUS)?
At Q1's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in ZEUS over the last 18 quarters. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Olympic Steel, Inc. (NASDAQ:ZEUS) was held by Renaissance Technologies, which reported holding $1 million worth of stock at the end of September. It was followed by Ancora Advisors with a $0.7 million position. Other investors bullish on the company included D E Shaw, Royce & Associates, and Tudor Investment Corp. In terms of the portfolio weights assigned to each position Ancora Advisors allocated the biggest weight to Olympic Steel, Inc. (NASDAQ:ZEUS), around 0.03% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to ZEUS.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified ZEUS as a viable investment and initiated a position in the stock.
Let's now review hedge fund activity in other stocks similar to Olympic Steel, Inc. (NASDAQ:ZEUS). We will take a look at Oasis Petroleum Inc. (NYSE:OAS), BP Prudhoe Bay Royalty Trust (NYSE:BPT), EMX Royalty Corporation (NYSE:EMX), and First Northwest Bancorp (NASDAQ:FNWB). This group of stocks' market valuations are closest to ZEUS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OAS,13,3969,-4 BPT,2,194,0 EMX,2,3360,0 FNWB,3,12965,-1 Average,5,5122,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $3 million in ZEUS's case. Oasis Petroleum Inc. (NYSE:OAS) is the most popular stock in this table. On the other hand BP Prudhoe Bay Royalty Trust (NYSE:BPT) is the least popular one with only 2 bullish hedge fund positions. Olympic Steel, Inc. (NASDAQ:ZEUS) is not the least popular stock in this group but hedge fund interest is still below average. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately ZEUS wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ZEUS investors were disappointed as the stock returned 6.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
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