Eastman Chemical Company (EMN): Hedge Funds In Wait-and-See Mode

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Eastman Chemical Company (NYSE:EMN) changed recently.

Eastman Chemical Company (NYSE:EMN) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 27 hedge funds’ portfolios at the end of June. Our calculations also showed that EMN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). 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 Companhia Paranaense de Energia (NYSE:ELP), NortonLifeLock Inc. (NASDAQ:NLOK), and Nomura Holdings, Inc. (NYSE:NMR) to gather more data points.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 79 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.

Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 homepage. With all of this in mind we’re going to take a glance at the key hedge fund action encompassing Eastman Chemical Company (NYSE:EMN).

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

At the end of June, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EMN over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EMN A Good Stock To Buy?

More specifically, AQR Capital Management was the largest shareholder of Eastman Chemical Company (NYSE:EMN), with a stake worth $39.6 million reported as of the end of June. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $33.4 million. Adage Capital Management, Ancora Advisors, and Citadel Investment Group 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 Atlantic Investment Management allocated the biggest weight to Eastman Chemical Company (NYSE:EMN), around 3.67% of its 13F portfolio. Appian Way Asset Management is also relatively very bullish on the stock, earmarking 1.03 percent of its 13F equity portfolio to EMN.

Seeing as Eastman Chemical Company (NYSE:EMN) has faced a decline in interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of fund managers that elected to cut their entire stakes heading into Q3. Interestingly, Thomas E. Claugus’s GMT Capital said goodbye to the largest stake of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $12.9 million in stock, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund dropped about $12.1 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Eastman Chemical Company (NYSE:EMN). We will take a look at Companhia Paranaense de Energia (NYSE:ELP), NortonLifeLock Inc. (NASDAQ:NLOK), Nomura Holdings, Inc. (NYSE:NMR), Novavax, Inc. (NASDAQ:NVAX), Arch Capital Group Ltd. (NASDAQ:ACGL), Check Point Software Technologies Ltd. (NASDAQ:CHKP), and Altice USA, Inc. (NYSE:ATUS). All of these stocks’ market caps are similar to EMN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ELP 13 43466 8
NLOK 36 1340848 4
NMR 7 17637 -3
NVAX 37 1172482 -1
ACGL 22 1438952 -12
CHKP 29 646892 -2
ATUS 44 3176106 -4
Average 26.9 1119483 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $1119 million. That figure was $156 million in EMN’s case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 7 bullish hedge fund positions. Eastman Chemical Company (NYSE:EMN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EMN is 52.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately EMN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on EMN were disappointed as the stock returned -7.5% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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