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Embraer SA (ERJ): Are Hedge Funds Right About This Stock?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards Embraer SA (NYSE:ERJ).

Embraer SA (NYSE:ERJ) was in 14 hedge funds’ portfolios at the end of the fourth quarter of 2019. ERJ shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. There were 15 hedge funds in our database with ERJ holdings at the end of the previous quarter. Our calculations also showed that ERJ isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

SAC CAPITAL ADVISORS

Steven Cohen of Point72 Asset Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the new hedge fund action encompassing Embraer SA (NYSE:ERJ).

How are hedge funds trading Embraer SA (NYSE:ERJ)?

At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in ERJ over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Oldfield Partners was the largest shareholder of Embraer SA (NYSE:ERJ), with a stake worth $97.5 million reported as of the end of September. Trailing Oldfield Partners was Renaissance Technologies, which amassed a stake valued at $31.3 million. Arrowstreet Capital, AQR Capital Management, and Point72 Asset 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 8.65% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.06 percent of its 13F equity portfolio to ERJ.

Due to the fact that Embraer SA (NYSE:ERJ) has experienced bearish sentiment from hedge fund managers, logic holds that there were a few hedgies who were dropping their entire stakes last quarter. At the top of the heap, Matthew Tewksbury’s Stevens Capital Management dropped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling about $0.8 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund sold off about $0.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.

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 National Health Investors Inc (NYSE:NHI), Exponent, Inc. (NASDAQ:EXPO), FireEye Inc (NASDAQ:FEYE), and Switch, Inc. (NYSE:SWCH). This group of stocks’ market values resemble ERJ’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NHI 15 143101 -2
EXPO 17 110746 -4
FEYE 30 267777 1
SWCH 18 303775 3
Average 20 206350 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $206 million. That figure was $170 million in ERJ’s case. FireEye Inc (NASDAQ:FEYE) is the most popular stock in this table. On the other hand National Health Investors Inc (NYSE:NHI) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Embraer SA (NYSE:ERJ) is even less popular than NHI. Hedge funds dodged a bullet by taking a bearish stance towards ERJ. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately ERJ wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ERJ investors were disappointed as the stock returned -57.7% 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 most of these stocks already outperformed the market so far in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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