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Hedge Funds Have Never Been This Bullish On GrafTech International Ltd. (EAF)

Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards GrafTech International Ltd. (NYSE:EAF).

Is GrafTech International Ltd. (NYSE:EAF) a marvelous stock to buy now? Investors who are in the know are buying. The number of bullish hedge fund bets moved up by 6 recently. Our calculations also showed that EAF 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).

In the 21st century investor’s toolkit there are plenty of signals investors have at their disposal to evaluate stocks. A duo of the most innovative signals are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the top investment managers can beat their index-focused peers by a solid amount (see the details here).

MOHNISH PABRAI

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 fresh hedge fund action encompassing GrafTech International Ltd. (NYSE:EAF).

How are hedge funds trading GrafTech International Ltd. (NYSE:EAF)?

At the end of the fourth quarter, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in EAF a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EAF A Good Stock To Buy?

Among these funds, Mohnish Pabrai held the most valuable stake in GrafTech International Ltd. (NYSE:EAF), which was worth $51.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $32.4 million worth of shares. Arrowstreet Capital, Yacktman Asset Management, and Laurion 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 Mohnish Pabrai allocated the biggest weight to GrafTech International Ltd. (NYSE:EAF), around 19.07% of its 13F portfolio. Indus Capital is also relatively very bullish on the stock, setting aside 2.31 percent of its 13F equity portfolio to EAF.

As industrywide interest jumped, some big names were breaking ground themselves. Laurion Capital Management, managed by Benjamin A. Smith, established the largest position in GrafTech International Ltd. (NYSE:EAF). Laurion Capital Management had $17.4 million invested in the company at the end of the quarter. Simon Sadler’s Segantii Capital also made a $2.2 million investment in the stock during the quarter. The other funds with brand new EAF positions are John Overdeck and David Siegel’s Two Sigma Advisors, Travis Cocke’s Voss Capital, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s now take a look at hedge fund activity in other stocks similar to GrafTech International Ltd. (NYSE:EAF). These stocks are Brookfield Business Partners L.P. (NYSE:BBU), SmileDirectClub, Inc. (NASDAQ:SDC), Cloudera, Inc. (NYSE:CLDR), and Hutchison China MediTech Limited (NASDAQ:HCM). All of these stocks’ market caps are closest to EAF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BBU 4 9985 -2
SDC 20 139860 -9
CLDR 22 809760 -5
HCM 7 20419 -5
Average 13.25 245006 -5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $245 million. That figure was $242 million in EAF’s case. Cloudera, Inc. (NYSE:CLDR) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks GrafTech International Ltd. (NYSE:EAF) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds 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 and still beat the market by 5.5 percentage points. Unfortunately EAF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EAF were disappointed as the stock returned -33.6% during the first two and a half months of 2020 (through March 25th) 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 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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