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How Did Eastman Chemical Company (EMN) Compare Against Top Hedge Fund Stocks in 2019?

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds' top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by 14.5 percentage points. That's a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Eastman Chemical Company (NYSE:EMN) shareholders have witnessed an increase in enthusiasm from smart money of late. EMN was in 27 hedge funds' portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with EMN holdings at the end of the previous quarter. Our calculations also showed that EMN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

To most traders, hedge funds are assumed to be underperforming, outdated investment vehicles of the past. While there are over 8000 funds trading at present, Our experts look at the masters of this club, around 750 funds. These money managers administer the lion's share of all hedge funds' total capital, and by monitoring their finest investments, Insider Monkey has deciphered various investment strategies that have historically defeated the market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_343254" align="aligncenter" width="600"] Alexander Roepers of Atlantic Investment Management[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let's view the fresh hedge fund action surrounding Eastman Chemical Company (NYSE:EMN).

How are hedge funds trading Eastman Chemical Company (NYSE:EMN)?

At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EMN over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

More specifically, Diamond Hill Capital was the largest shareholder of Eastman Chemical Company (NYSE:EMN), with a stake worth $101.2 million reported as of the end of September. Trailing Diamond Hill Capital was AQR Capital Management, which amassed a stake valued at $83.1 million. D E Shaw, GMT Capital, and Atlantic Investment Management 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 Atlantic Investment Management allocated the biggest weight to Eastman Chemical Company (NYSE:EMN), around 13.03% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, designating 1.4 percent of its 13F equity portfolio to EMN.

Consequently, key money managers have been driving this bullishness. Scopus Asset Management, managed by Alexander Mitchell, created the biggest position in Eastman Chemical Company (NYSE:EMN). Scopus Asset Management had $5.5 million invested in the company at the end of the quarter. David E. Shaw's D E Shaw also initiated a $4.4 million position during the quarter. The other funds with new positions in the stock are Sara Nainzadeh's Centenus Global Management, Matthew Hulsizer's PEAK6 Capital Management, and Michael Gelband's ExodusPoint Capital.

Let's check out hedge fund activity in other stocks similar to Eastman Chemical Company (NYSE:EMN). These stocks are Domino's Pizza, Inc. (NYSE:DPZ), Weibo Corp (NASDAQ:WB), Whirlpool Corporation (NYSE:WHR), and Packaging Corporation Of America (NYSE:PKG). This group of stocks' market values are similar to EMN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DPZ,36,1932455,9 WB,14,353314,-2 WHR,28,978810,9 PKG,16,119433,-5 Average,23.5,846003,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $846 million. That figure was $409 million in EMN's case. Domino's Pizza, Inc. (NYSE:DPZ) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 14 bullish hedge fund positions. Eastman Chemical Company (NYSE:EMN) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately EMN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EMN were disappointed as the stock returned 12% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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