Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Eastman Chemical Company (NYSE:EMN).
Is Eastman Chemical Company (NYSE:EMN) a safe investment now? Prominent investors are turning bullish. The number of bullish hedge fund positions inched up by 2 recently. Our calculations also showed that EMN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 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.
Ric Dillon of Diamond Hill Capital
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 view the fresh hedge fund action surrounding Eastman Chemical Company (NYSE:EMN).
What have hedge funds been doing with Eastman Chemical Company (NYSE:EMN)?
At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the third quarter of 2019. On the other hand, there were a total of 33 hedge funds with a bullish position in EMN a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the most valuable position in Eastman Chemical Company (NYSE:EMN). Diamond Hill Capital has a $114.1 million position in the stock, comprising 0.6% of its 13F portfolio. The second most bullish fund manager is AQR Capital Management, managed by Cliff Asness, which holds a $89.3 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism encompass Israel Englander’s Millennium Management, Thomas E. Claugus’s GMT Capital and Alexander Roepers’s Atlantic Investment Management. In terms of the portfolio weights assigned to each position Atlantic Investment Management allocated the biggest weight to Eastman Chemical Company (NYSE:EMN), around 9.69% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, designating 2.2 percent of its 13F equity portfolio to EMN.
Consequently, specific money managers were leading the bulls’ herd. Point State Capital, managed by Zach Schreiber, initiated the largest position in Eastman Chemical Company (NYSE:EMN). Point State Capital had $27.1 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $19.8 million investment in the stock during the quarter. The other funds with brand new EMN positions are Benjamin A. Smith’s Laurion Capital Management, Ali Motamed’s Invenomic Capital Management, and David Harding’s Winton Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Eastman Chemical Company (NYSE:EMN) but similarly valued. We will take a look at Teva Pharmaceutical Industries Limited (NYSE:TEVA), Liberty Media Corporation (NASDAQ:FWONK), Banco de Chile (NYSE:BCH), and Packaging Corporation Of America (NYSE:PKG). This group of stocks’ market valuations are closest to EMN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TEVA | 23 | 943507 | -1 |
| FWONK | 37 | 2062554 | 6 |
| BCH | 10 | 53547 | 6 |
| PKG | 18 | 113206 | 1 |
| Average | 22 | 793204 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $793 million. That figure was $494 million in EMN’s case. Liberty Media Corporation (NASDAQ:FWONK) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 10 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately EMN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EMN were disappointed as the stock returned -48.7% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
