Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Eastman Chemical Company (NYSE:EMN).
Eastman Chemical Company (NYSE:EMN) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 39 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Enbridge Energy Partners, L.P. (NYSE:EEP), First Republic Bank (NYSE:FRC), and ONEOK, Inc. (NYSE:OKE) to gather more data points.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Now, we’re going to take a glance at the new action surrounding Eastman Chemical Company (NYSE:EMN).
Hedge fund activity in Eastman Chemical Company (NYSE:EMN)
Heading into the fourth quarter of 2016, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the previous quarter. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alexander Roepers’s Atlantic Investment Management has the number one position in Eastman Chemical Company (NYSE:EMN), worth close to $132.2 million, amounting to 17.3% of its total 13F portfolio. The second most bullish fund manager is Iridian Asset Management, run by David Cohen and Harold Levy, which holds a $112.3 million position; 1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism contain Cliff Asness’s AQR Capital Management, Ken Griffin’s Citadel Investment Group and Ric Dillon’s Diamond Hill Capital.
Because Eastman Chemical Company (NYSE:EMN) has experienced unchanged sentiment from hedge fund managers, it’s to look at the select few hedge funds that decided to sell off their entire stakes in the third quarter. Intriguingly, Jean-Marie Eveillard’s First Eagle Investment Management sold off the biggest investment of the 700 funds followed by Insider Monkey, worth about $79 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dropped its bet, about $22.9 million worth of EMN shares. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Eastman Chemical Company (NYSE:EMN) but similarly valued. These stocks are Enbridge Energy Partners, L.P. (NYSE:EEP), First Republic Bank (NYSE:FRC), ONEOK, Inc. (NYSE:OKE), and Medivation Inc (NASDAQ:MDVN). This group of stocks’ market valuations are similar to EMN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EEP | 10 | 120258 | 1 |
| FRC | 25 | 531357 | 3 |
| OKE | 14 | 73303 | -4 |
| MDVN | 1 | 1850 | -64 |
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $802 million in EMN’s case. First Republic Bank (NYSE:FRC) is the most popular stock in this table. On the other hand Medivation Inc (NASDAQ:MDVN) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Eastman Chemical Company (NYSE:EMN) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: none.
