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Is Element Solutions Inc (ESI) Going To Burn These Hedge Funds ?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by 4 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Element Solutions Inc (NYSE:ESI) from the perspective of those elite funds.

Is Element Solutions Inc (NYSE:ESI) a healthy stock for your portfolio? The smart money is in a pessimistic mood. The number of long hedge fund bets shrunk by 5 recently. Our calculations also showed that ESI isn’t among the 30 most popular stocks among hedge funds (view the video below). ESI was in 27 hedge funds’ portfolios at the end of June. There were 32 hedge funds in our database with ESI holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GLENVIEW CAPITAL

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the new hedge fund action surrounding Element Solutions Inc (NYSE:ESI).

What does smart money think about Element Solutions Inc (NYSE:ESI)?

At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ESI over the last 16 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

No of Hedge Funds with ESI Positions

According to Insider Monkey’s hedge fund database, Bares Capital Management, managed by Brian Bares, holds the largest position in Element Solutions Inc (NYSE:ESI). Bares Capital Management has a $169.3 million position in the stock, comprising 4.6% of its 13F portfolio. On Bares Capital Management’s heels is Glenview Capital, led by Larry Robbins, holding a $120.9 million position; 1.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism comprise Paul Singer’s Elliott Management, Jeffrey Gates’s Gates Capital Management and Curtis Schenker and Craig Effron’s Scoggin.

Seeing as Element Solutions Inc (NYSE:ESI) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few money managers who were dropping their entire stakes by the end of the second quarter. Interestingly, Benjamin A. Smith’s Laurion Capital Management sold off the biggest position of the 750 funds monitored by Insider Monkey, worth close to $6.6 million in stock, and Joseph Samuels’s Islet Management was right behind this move, as the fund cut about $6.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 5 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks similar to Element Solutions Inc (NYSE:ESI). These stocks are Yelp Inc (NYSE:YELP), Workiva Inc (NYSE:WK), Genesis Energy, L.P. (NYSE:GEL), and ABM Industries Incorporated (NYSE:ABM). This group of stocks’ market values are closest to ESI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YELP 27 471213 -6
WK 20 245012 3
GEL 4 29878 1
ABM 10 38801 2
Average 15.25 196226 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $654 million in ESI’s case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand Genesis Energy, L.P. (NYSE:GEL) is the least popular one with only 4 bullish hedge fund positions. Element Solutions Inc (NYSE:ESI) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ESI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ESI were disappointed as the stock returned -1.5% during the third quarter 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 many of these stocks already outperformed the market so far this year.

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

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