Was The Smart Money Right About Piling Into Emerson Electric (EMR)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 887 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Emerson Electric Co. (NYSE:EMR).

Emerson Electric Co. (NYSE:EMR) has experienced an increase in activity from the world’s largest hedge funds lately. Emerson Electric Co. (NYSE:EMR) was in 46 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that EMR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 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.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s take a look at the fresh hedge fund action surrounding Emerson Electric Co. (NYSE:EMR).

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

At Q4’s end, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 28% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EMR over the last 22 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Griffin’s Citadel Investment Group has the number one position in Emerson Electric Co. (NYSE:EMR), worth close to $241.6 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is Phill Gross and Robert Atchinson of Adage Capital Management, with a $223.7 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism contain Cliff Asness’s AQR Capital Management, David Tepper’s Appaloosa Management LP and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Albar Capital allocated the biggest weight to Emerson Electric Co. (NYSE:EMR), around 3.55% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, setting aside 2.4 percent of its 13F equity portfolio to EMR.

Now, specific money managers have jumped into Emerson Electric Co. (NYSE:EMR) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, created the most valuable position in Emerson Electric Co. (NYSE:EMR). Balyasny Asset Management had $60.4 million invested in the company at the end of the quarter. Renaissance Technologies also made a $47.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Cowley’s Sandbar Asset Management, John Murphy’s Levin Easterly Partners, and Alexander Mitchell’s Scopus Asset Management.

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 Ambev SA (NYSE:ABEV), Newmont Corporation (NYSE:NEM), Eaton Corporation plc (NYSE:ETN), Relx PLC (NYSE:RELX), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Canadian Pacific Railway Limited (NYSE:CP), and Kimberly Clark Corporation (NYSE:KMB). This group of stocks’ market valuations are closest to EMR’s market valuation.

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As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $1813 million. That figure was $1044 million in EMR’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 8 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. Our overall hedge fund sentiment score for EMR is 62.6. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on EMR, though not to the same extent, as the stock returned 13.3% since Q4 (through April 30th) and outperformed the market as well.

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

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