Is ESI Stock A Buy or Sell?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Element Solutions Inc. (NYSE:ESI).

Is ESI stock a buy? Element Solutions Inc. (NYSE:ESI) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. Element Solutions Inc. (NYSE:ESI) was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 40. There were 35 hedge funds in our database with ESI holdings at the end of September. Our calculations also showed that ESI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.

Jeffrey Gates of Gates Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. With all of this in mind we’re going to take a gander at the key hedge fund action encompassing Element Solutions Inc. (NYSE:ESI).

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

At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the third quarter of 2020. By comparison, 37 hedge funds held shares or bullish call options in ESI a year ago. 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, Gates Capital Management held the most valuable stake in Element Solutions Inc. (NYSE:ESI), which was worth $148.5 million at the end of the fourth quarter. On the second spot was Glenview Capital which amassed $68.6 million worth of shares. Royce & Associates, Locust Wood Capital Advisers, and MIC Capital Partners 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 MIC Capital Partners allocated the biggest weight to Element Solutions Inc. (NYSE:ESI), around 11.78% of its 13F portfolio. Scoggin is also relatively very bullish on the stock, dishing out 4.62 percent of its 13F equity portfolio to ESI.

Because Element Solutions Inc. (NYSE:ESI) has faced a decline in interest from hedge fund managers, it’s safe to say that there was a specific group of hedge funds that slashed their entire stakes heading into Q1. At the top of the heap, Andrew Byington’s Appian Way Asset Management dumped the biggest position of all the hedgies followed by Insider Monkey, totaling an estimated $4.6 million in stock, and Mark Coe’s Intrinsic Edge Capital was right behind this move, as the fund dropped about $4.1 million worth. These transactions are important to note, as total hedge fund interest fell by 6 funds heading into Q1.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Element Solutions Inc. (NYSE:ESI) but similarly valued. These stocks are Navistar International Corp (NYSE:NAV), J2 Global Inc (NASDAQ:JCOM), Editas Medicine, Inc. (NASDAQ:EDIT), Grand Canyon Education Inc (NASDAQ:LOPE), SunPower Corporation (NASDAQ:SPWR), NewMarket Corporation (NYSE:NEU), and BigCommerce Holdings, Inc. (NASDAQ:BIGC). All of these stocks’ market caps are closest to ESI’s market cap.

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As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $649 million. That figure was $578 million in ESI’s case. Navistar International Corp (NYSE:NAV) is the most popular stock in this table. On the other hand NewMarket Corporation (NYSE:NEU) is the least popular one with only 15 bullish hedge fund positions. Element Solutions Inc. (NYSE:ESI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ESI is 70.8. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and still beat the market by 1.5 percentage points. Hedge funds were also right about betting on ESI, though not to the same extent, as the stock returned 9.1% since Q4 (through April 12th) and outperformed the market as well.

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