We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Emerson Electric Co. (NYSE:EMR) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Emerson Electric Co. (NYSE:EMR) has experienced an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that EMR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Paul Tudor Jones of Tudor Investment Corp
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the new hedge fund action encompassing Emerson Electric Co. (NYSE:EMR).
What does smart money think about Emerson Electric Co. (NYSE:EMR)?
Heading into the first quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EMR over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, D E Shaw held the most valuable stake in Emerson Electric Co. (NYSE:EMR), which was worth $621.9 million at the end of the third quarter. On the second spot was Holocene Advisors which amassed $131.5 million worth of shares. Citadel Investment Group, Two Sigma Advisors, and Holocene Advisors 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 Galibier Capital Management allocated the biggest weight to Emerson Electric Co. (NYSE:EMR), around 4.5% of its 13F portfolio. Interval Partners is also relatively very bullish on the stock, designating 1.47 percent of its 13F equity portfolio to EMR.
Now, key hedge funds have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, assembled the largest position in Emerson Electric Co. (NYSE:EMR). Holocene Advisors had $55.1 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $10.8 million position during the quarter. The following funds were also among the new EMR investors: Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, Jonathan Barrett and Paul Segal’s Luminus Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Emerson Electric Co. (NYSE:EMR) but similarly valued. These stocks are The Bank of New York Mellon Corporation (NYSE:BK), Shopify Inc (NYSE:SHOP), Simon Property Group, Inc (NYSE:SPG), and UBS Group AG (NYSE:UBS). This group of stocks’ market valuations are closest to EMR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BK | 58 | 6711257 | 3 |
| SHOP | 30 | 3075550 | -7 |
| SPG | 26 | 579726 | -3 |
| UBS | 14 | 1045423 | -2 |
| Average | 32 | 2852989 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $2853 million. That figure was $1165 million in EMR’s case. The Bank of New York Mellon Corporation (NYSE:BK) is the most popular stock in this table. On the other hand UBS Group AG (NYSE:UBS) is the least popular one with only 14 bullish hedge fund positions. Emerson Electric Co. (NYSE:EMR) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately EMR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EMR were disappointed as the stock returned -38% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
