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Hedge Funds Are Selling Eastman Chemical Company (EMN)

Asma UL Husna

In this article we will take a look at whether hedge funds think Eastman Chemical Company (NYSE:EMN) 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.

Eastman Chemical Company (NYSE:EMN) was in 29 hedge funds' portfolios at the end of March. EMN shareholders have witnessed a decrease in hedge fund interest lately. There were 32 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 (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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_30621" align="aligncenter" width="399"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to check out the key hedge fund action regarding Eastman Chemical Company (NYSE:EMN).

How are hedge funds trading Eastman Chemical Company (NYSE:EMN)?

Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in EMN a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

The largest stake in Eastman Chemical Company (NYSE:EMN) was held by GMT Capital, which reported holding $65 million worth of stock at the end of September. It was followed by AQR Capital Management with a $43.2 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Citadel Investment Group. In terms of the portfolio weights assigned to each position GMT Capital allocated the biggest weight to Eastman Chemical Company (NYSE:EMN), around 3.65% of its 13F portfolio. Atlantic Investment Management is also relatively very bullish on the stock, setting aside 2.63 percent of its 13F equity portfolio to EMN.

Judging by the fact that Eastman Chemical Company (NYSE:EMN) has faced a decline in interest from the aggregate hedge fund industry, it's easy to see that there were a few hedgies who sold off their positions entirely last quarter. At the top of the heap, Ric Dillon's Diamond Hill Capital dropped the largest position of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $114.1 million in stock. Zach Schreiber's fund, Point State Capital, also sold off its stock, about $27.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds last quarter.

Let's now take a look at hedge fund activity in other stocks similar to Eastman Chemical Company (NYSE:EMN). These stocks are American Financial Group, Inc. (NYSE:AFG), Juniper Networks, Inc. (NYSE:JNPR), LKQ Corporation (NASDAQ:LKQ), and Formula One Group (NASDAQ:FWONK). All of these stocks' market caps are similar to EMN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AFG,24,200932,-1 JNPR,34,540661,-3 LKQ,41,1132023,-11 FWONK,37,1125200,0 Average,34,749704,-3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $750 million. That figure was $234 million in EMN's case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand American Financial Group, Inc. (NYSE:AFG) is the least popular one with only 24 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. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on EMN as the stock returned 46.2% 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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