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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. Insider Monkey finished processing 817 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of September 30th, 2020. What do these smart investors think about Emerson Electric Co. (NYSE:EMR)?
Is EMR a good stock to buy? Hedge fund interest in Emerson Electric Co. (NYSE:EMR) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that EMR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Public Storage (NYSE:PSA), Itau Unibanco Holding SA (NYSE:ITUB), and Keurig Dr Pepper Inc. (NASDAQ:KDP) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 66 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 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 stocks that are in our short portfolio.
David Tepper of Appaloosa Management LP
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's take a look at the latest hedge fund action encompassing Emerson Electric Co. (NYSE:EMR).
Do Hedge Funds Think EMR Is A Good Stock To Buy Now?
At Q3's end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 39 hedge funds with a bullish position in EMR a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in Emerson Electric Co. (NYSE:EMR) was held by AQR Capital Management, which reported holding $90.2 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $84.2 million position. Other investors bullish on the company included Appaloosa Management LP, Adage Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Galibier Capital Management allocated the biggest weight to Emerson Electric Co. (NYSE:EMR), around 3.03% of its 13F portfolio. Arjuna Capital is also relatively very bullish on the stock, dishing out 1.46 percent of its 13F equity portfolio to EMR.
Since Emerson Electric Co. (NYSE:EMR) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of fund managers that slashed their entire stakes in the third quarter. Interestingly, Andrew Byington's Appian Way Asset Management dropped the biggest position of the "upper crust" of funds followed by Insider Monkey, totaling about $7.7 million in stock. Louis Bacon's fund, Moore Global Investments, also dumped its stock, about $4 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at 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 Public Storage (NYSE:PSA), Itau Unibanco Holding SA (NYSE:ITUB), Keurig Dr Pepper Inc. (NASDAQ:KDP), Snap Inc. (NYSE:SNAP), Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), Carvana Co. (NYSE:CVNA), and General Mills, Inc. (NYSE:GIS). All of these stocks' market caps resemble EMR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PSA,17,818499,-9 ITUB,16,236336,-4 KDP,41,1213638,12 SNAP,51,1166136,2 SMFG,8,88240,-2 CVNA,53,6020303,-4 GIS,36,1054191,-1 Average,31.7,1513906,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.7 hedge funds with bullish positions and the average amount invested in these stocks was $1514 million. That figure was $468 million in EMR's case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 8 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 60.7. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on EMR as the stock returned 24.2% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.