Is Emerson Electric Co. (EMR) a Good Buy?

The third quarter was a rough one for most investors, as fears of an interest rate hike in the U.S, a weakening economy in China, and a stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Emerson Electric Co. (NYSE:EMR), and what that likely means for the prospects of the company and its stock.

Emerson Electric Co. (NYSE:EMR) was in 34 hedge funds’ portfolios at the end of September. EMR investors should be aware of a decrease in hedge fund sentiment in recent months. There were 40 hedge funds in our database with EMR positions at the end of the previous quarter. 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 Canadian Imperial Bank of Commerce (USA) (NYSE:CM), Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), and Becton, Dickinson and Co. (NYSE:BDX) to gather more data points.

In the 21st century investor’s toolkit there are a lot of gauges stock market investors have at their disposal to grade stocks. Some of the most innovative gauges are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the top money managers can trounce the market by a healthy margin (see the details here).

With all of this in mind, we’re going to view the recent action regarding Emerson Electric Co. (NYSE:EMR).

Hedge fund activity in Emerson Electric Co. (NYSE:EMR)

At Q3’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, International Value Advisers, managed by Charles de Vaulx, holds the number one position in Emerson Electric Co. (NYSE:EMR). International Value Advisers has a $118.7 million position in the stock, comprising 3.2% of its 13F portfolio. The second most bullish fund manager is D. E. Shaw of D E Shaw, with a $110.6 million position; 0.2% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions consist of John Overdeck and David Siegel’s Two Sigma Advisors, David Harding’s Winton Capital Management and Daniel S. Och’s OZ Management.

Since Emerson Electric Co. (NYSE:EMR) has faced bearish sentiment from the smart money, it’s easy to see that there was a specific group of funds that slashed their entire stakes by the end of the third quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $46.3 million in stock, and Stephen Loukas, David A. Lorber, Zachary George’s FrontFour Capital Group was right behind this move, as the fund dropped about $12.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 6 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to Emerson Electric Co. (NYSE:EMR). We will take a look at Canadian Imperial Bank of Commerce (USA) (NYSE:CM), Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), Becton, Dickinson and Co. (NYSE:BDX), and American Electric Power Company, Inc. (NYSE:AEP). All of these stocks’ market caps are closest to EMR’s market cap.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $586 million. That figure was $682 million in EMR’s case. Becton, Dickinson and Co. (NYSE:BDX) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (USA) (NYSE:CM) 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. In this regard BDX might be a better candidate to consider a long position.