In this article we will take a look at whether hedge funds think Embraer SA (NYSE:ERJ) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Embraer SA (NYSE:ERJ) a buy here? Money managers are in an optimistic mood. The number of long hedge fund bets increased by 2 recently. Our calculations also showed that ERJ 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). 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_256989" align="aligncenter" width="400"] Dmitry Balyasny of Balyasny Asset Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to go over the fresh hedge fund action regarding Embraer SA (NYSE:ERJ).
How are hedge funds trading Embraer SA (NYSE:ERJ)?
At Q1's end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in ERJ a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Oldfield Partners held the most valuable stake in Embraer SA (NYSE:ERJ), which was worth $128.2 million at the end of the third quarter. On the second spot was Balyasny Asset Management which amassed $19.8 million worth of shares. Renaissance Technologies, Kopernik Global Investors, and Adage Capital 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 Oldfield Partners allocated the biggest weight to Embraer SA (NYSE:ERJ), around 16.23% of its 13F portfolio. Kopernik Global Investors is also relatively very bullish on the stock, setting aside 1.2 percent of its 13F equity portfolio to ERJ.
As aggregate interest increased, key hedge funds have jumped into Embraer SA (NYSE:ERJ) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in Embraer SA (NYSE:ERJ). Balyasny Asset Management had $19.8 million invested in the company at the end of the quarter. David Iben's Kopernik Global Investors also initiated a $5.6 million position during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Greg Eisner's Engineers Gate Manager, and Mike Vranos's Ellington.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Embraer SA (NYSE:ERJ) but similarly valued. These stocks are Itau CorpBanca (NYSE:ITCB), Zogenix, Inc. (NASDAQ:ZGNX), AMC Networks Inc (NASDAQ:AMCX), and Mueller Industries, Inc. (NYSE:MLI). This group of stocks' market caps match ERJ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ITCB,1,1270,0 ZGNX,36,579292,3 AMCX,23,112696,-2 MLI,17,160955,-4 Average,19.25,213553,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $189 million in ERJ's case. Zogenix, Inc. (NASDAQ:ZGNX) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. Embraer SA (NYSE:ERJ) 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 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately ERJ wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ERJ investors were disappointed as the stock returned -17.4% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.