Were Hedge Funds Illusioned With Emerson Electric Co. (EMR)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Emerson Electric Co. (NYSE:EMR) and determine whether hedge funds skillfully traded this stock.

Emerson Electric Co. (NYSE:EMR) was in 41 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 46. EMR investors should be aware of a decrease in hedge fund interest of late. There were 45 hedge funds in our database with EMR holdings at the end of June. Our calculations also showed that EMR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. Keeping this in mind we’re going to take a peek at the latest hedge fund action regarding Emerson Electric Co. (NYSE:EMR).

Michael Lowenstein of Kensico Capital

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

At the end of the third quarter, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the second quarter of 2021. By comparison, 36 hedge funds held shares or bullish call options in EMR a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the largest position in Emerson Electric Co. (NYSE:EMR). AQR Capital Management has a $157.2 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds a $118.4 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish include John Overdeck and David Siegel’s Two Sigma Advisors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Southport Management allocated the biggest weight to Emerson Electric Co. (NYSE:EMR), around 3.58% of its 13F portfolio. Albar Capital is also relatively very bullish on the stock, earmarking 1.69 percent of its 13F equity portfolio to EMR.

Due to the fact that Emerson Electric Co. (NYSE:EMR) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedge funds who were dropping their full holdings by the end of the third quarter. Intriguingly, David Tepper’s Appaloosa Management LP cut the biggest investment of the 750 funds tracked by Insider Monkey, worth an estimated $71 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund said goodbye to about $15.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Emerson Electric Co. (NYSE:EMR). We will take a look at CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Relx PLC (NYSE:RELX), UBS Group AG (NYSE:UBS), General Dynamics Corporation (NYSE:GD), Thomson Reuters Corporation (NYSE:TRI), Baidu, Inc. (NASDAQ:BIDU), and Honda Motor Co Ltd (NYSE:HMC). All of these stocks’ market caps are similar to EMR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.7 hedge funds with bullish positions and the average amount invested in these stocks was $2326 million. That figure was $671 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 7 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 53.1. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, EMR wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on EMR were disappointed as the stock returned -1.9% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

Suggested Articles:

• Amish Mehta and SQN Investors’ Top Picks
• 10 Best Defensive Stocks to Buy Today According to Billionaire Ken Fisher
• 12 Highest Paying Part Time Jobs for College Students

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