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Did Hedge Funds Get GrafTech International Ltd. (EAF) Right?

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The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 867 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 September 30th, when the S&P 500 Index was trading around the 4300 level. Since then investors decided to bet on the economic recovery and a stock market rebound even though we experienced a temporary correction in January. In this article you are going to find out whether hedge funds thought GrafTech International Ltd. (NYSE:EAF) was a good investment heading into the fourth quarter and how the stock traded in comparison to the top hedge fund picks.

Is GrafTech International Ltd. (NYSE:EAF) a buy, sell, or hold? The smart money was getting less bullish. The number of bullish hedge fund positions fell by 5 recently. GrafTech International Ltd. (NYSE:EAF) was in 31 hedge funds' portfolios at the end of September. The all time high for this statistic is 38. Our calculations also showed that EAF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 36 hedge funds in our database with EAF positions at the end of the second quarter.

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 let's review the latest hedge fund action surrounding GrafTech International Ltd. (NYSE:EAF).

Donald Yacktman of Yacktman Asset Management

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

At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards EAF over the last 25 quarters. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Yacktman Asset Management held the most valuable stake in GrafTech International Ltd. (NYSE:EAF), which was worth $53.7 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $26.6 million worth of shares. Indus Capital, Two Sigma Advisors, and Millennium 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 Indus Capital allocated the biggest weight to GrafTech International Ltd. (NYSE:EAF), around 4.58% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, setting aside 1.37 percent of its 13F equity portfolio to EAF.

Seeing as GrafTech International Ltd. (NYSE:EAF) has faced bearish sentiment from hedge fund managers, we can see that there lies a certain "tier" of funds that decided to sell off their entire stakes heading into Q4. Intriguingly, Simon Sadler's Segantii Capital sold off the biggest investment of the "upper crust" of funds tracked by Insider Monkey, worth close to $12.5 million in stock. Mike Masters's fund, Masters Capital Management, also dropped its stock, about $11.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 5 funds heading into Q4.

Let's go over hedge fund activity in other stocks similar to GrafTech International Ltd. (NYSE:EAF). We will take a look at CVB Financial Corp. (NASDAQ:CVBF), Sharecare Inc. (NASDAQ:SHCR), Advantage Solutions Inc. (NASDAQ:ADV), Live Oak Bancshares Inc (NASDAQ:LOB), CS Disco Inc. (NYSE:LAW), Heska Corp (NASDAQ:HSKA), and CNX Resources Corporation (NYSE:CNX). This group of stocks' market values match EAF's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVBF,18,50453,5 SHCR,10,60480,10 ADV,20,370785,-4 LOB,10,87812,-1 LAW,22,100775,22 HSKA,22,358706,2 CNX,34,525941,4 Average,19.4,222136,5.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.4 hedge funds with bullish positions and the average amount invested in these stocks was $222 million. That figure was $247 million in EAF's case. CNX Resources Corporation (NYSE:CNX) is the most popular stock in this table. On the other hand Sharecare Inc. (NASDAQ:SHCR) is the least popular one with only 10 bullish hedge fund positions. GrafTech International Ltd. (NYSE:EAF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EAF is 68.2. 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 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 still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on EAF as the stock returned 1.6% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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