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Hedge Funds Are Coming Back To Emcor Group Inc (EME)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Emcor Group Inc (NYSE:EME) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is Emcor Group Inc (NYSE:EME) the right pick for your portfolio? The best stock pickers were turning bullish. The number of bullish hedge fund positions improved by 5 lately. Emcor Group Inc (NYSE:EME) was in 29 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that EME isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 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 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.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now let’s go over the key hedge fund action regarding Emcor Group Inc (NYSE:EME).

How have hedgies been trading Emcor Group Inc (NYSE:EME)?

At the end of June, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in EME a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

The largest stake in Emcor Group Inc (NYSE:EME) was held by Stadium Capital Management, which reported holding $52.1 million worth of stock at the end of September. It was followed by AQR Capital Management with a $37.7 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and GLG Partners. In terms of the portfolio weights assigned to each position Stadium Capital Management allocated the biggest weight to Emcor Group Inc (NYSE:EME), around 20.9% of its 13F portfolio. Southport Management is also relatively very bullish on the stock, setting aside 6.18 percent of its 13F equity portfolio to EME.

Now, some big names have jumped into Emcor Group Inc (NYSE:EME) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Emcor Group Inc (NYSE:EME). Arrowstreet Capital had $2.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $2.2 million position during the quarter. The following funds were also among the new EME investors: Donald Sussman’s Paloma Partners, Michael Gelband’s ExodusPoint Capital, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Emcor Group Inc (NYSE:EME) but similarly valued. These stocks are FibroGen Inc (NASDAQ:FGEN), Cirrus Logic, Inc. (NASDAQ:CRUS), Silgan Holdings Inc. (NASDAQ:SLGN), Spirit Realty Capital Inc (NYSE:SRC), United Bankshares, Inc. (NASDAQ:UBSI), Equitrans Midstream Corporation (NYSE:ETRN), and Valvoline Inc. (NYSE:VVV). This group of stocks’ market valuations resemble EME’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FGEN 25 310554 3
CRUS 33 315676 5
SLGN 19 183360 3
SRC 18 154998 0
UBSI 16 44023 3
ETRN 29 465675 10
VVV 40 634494 1
Average 25.7 301254 3.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.7 hedge funds with bullish positions and the average amount invested in these stocks was $301 million. That figure was $191 million in EME’s case. Valvoline Inc. (NYSE:VVV) is the most popular stock in this table. On the other hand United Bankshares, Inc. (NASDAQ:UBSI) is the least popular one with only 16 bullish hedge fund positions. Emcor Group Inc (NYSE:EME) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EME is 67.1. 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 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately EME wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EME were disappointed as the stock returned 5.8% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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