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Did Hedge Funds Make The Right Call On Emerson Electric Co. (EMR) ?

Debasis Saha

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 821 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 March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Emerson Electric Co. (NYSE:EMR) and determine whether the smart money was really smart about this stock.

Is Emerson Electric Co. (NYSE:EMR) a splendid investment now? Prominent investors were getting less optimistic. The number of bullish hedge fund bets went down by 8 in recent months. Our calculations also showed that EMR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). EMR was in 33 hedge funds' portfolios at the end of March. There were 41 hedge funds in our database with EMR positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_673876" align="aligncenter" width="400"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma
John Overdeck of Two Sigma

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind we're going to take a gander at the recent hedge fund action regarding Emerson Electric Co. (NYSE:EMR).

What does smart money think about Emerson Electric Co. (NYSE:EMR)?

At Q1's end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. By comparison, 44 hedge funds held shares or bullish call options in EMR a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is OLN A Good Stock To Buy?
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The largest stake in Emerson Electric Co. (NYSE:EMR) was held by D E Shaw, which reported holding $82.3 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $81.8 million position. Other investors bullish on the company included Adage Capital Management, Citadel Investment Group, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Galibier Capital Management allocated the biggest weight to Emerson Electric Co. (NYSE:EMR), around 5.11% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, setting aside 1.09 percent of its 13F equity portfolio to EMR.

Seeing as Emerson Electric Co. (NYSE:EMR) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few hedgies that slashed their entire stakes by the end of the first quarter. It's worth mentioning that Brandon Haley's Holocene Advisors said goodbye to the largest investment of the 750 funds watched by Insider Monkey, worth about $55.1 million in stock. Gregg Moskowitz's fund, Interval Partners, also cut its stock, about $41.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 8 funds by the end of the first quarter.

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. We will take a look at The Allstate Corporation (NYSE:ALL), Electronic Arts Inc. (NASDAQ:EA), Metlife Inc (NYSE:MET), and WEC Energy Group, Inc. (NYSE:WEC). This group of stocks' market caps are similar to EMR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALL,43,1535993,6 EA,73,1987020,5 MET,34,1018231,-4 WEC,29,267388,14 Average,44.75,1202158,5.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.75 hedge funds with bullish positions and the average amount invested in these stocks was $1202 million. That figure was $434 million in EMR's case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand WEC Energy Group, Inc. (NYSE:WEC) is the least popular one with only 29 bullish hedge fund positions. Emerson Electric Co. (NYSE:EMR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on EMR as the stock returned 31.4% during the second quarter and outperformed the market by an even larger margin.

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

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