Does Eastman Chemical Company (NYSE:EMN) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Eastman Chemical Company (NYSE:EMN) was in 30 hedge funds' portfolios at the end of March. EMN investors should be aware of a decrease in activity from the world's largest hedge funds lately. There were 33 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a look at the recent hedge fund action surrounding Eastman Chemical Company (NYSE:EMN).
Hedge fund activity in Eastman Chemical Company (NYSE:EMN)
At Q1's end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards EMN over the last 15 quarters. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Eastman Chemical Company (NYSE:EMN), which was worth $103.4 million at the end of the first quarter. On the second spot was Diamond Hill Capital which amassed $94.8 million worth of shares. Moreover, Atlantic Investment Management, AQR Capital Management, and Bridgewater Associates were also bullish on Eastman Chemical Company (NYSE:EMN), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Eastman Chemical Company (NYSE:EMN) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few fund managers who sold off their entire stakes last quarter. Intriguingly, Ryan Caldwell's Chiron Investment Management sold off the largest stake of all the hedgies monitored by Insider Monkey, worth about $18.5 million in stock. David Costen Haley's fund, HBK Investments, also dropped its stock, about $9.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Eastman Chemical Company (NYSE:EMN) but similarly valued. We will take a look at The Mosaic Company (NYSE:MOS), Burlington Stores Inc (NYSE:BURL), Jacobs Engineering Group Inc (NYSE:JEC), and The Ultimate Software Group, Inc. (NASDAQ:ULTI). This group of stocks' market valuations resemble EMN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MOS,29,770708,-8 BURL,31,1351671,1 JEC,33,1008926,0 ULTI,35,1420211,15 Average,32,1137879,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1138 million. That figure was $519 million in EMN's case. The Ultimate Software Group, Inc. (NASDAQ:ULTI) is the most popular stock in this table. On the other hand The Mosaic Company (NYSE:MOS) is the least popular one with only 29 bullish hedge fund positions. Eastman Chemical Company (NYSE:EMN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately EMN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EMN investors were disappointed as the stock returned -11.1% during the same time period and underperformed 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.