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Were Hedge Funds Right About Emerson Electric Co. (EMR)?

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. Keeping this in mind, let’s take a look at whether Emerson Electric Co. (NYSE:EMR) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Emerson Electric Co. (NYSE:EMR) was in 41 hedge funds’ portfolios at the end of the fourth quarter of 2019. EMR has seen an increase in activity from the world’s largest hedge funds lately. There were 39 hedge funds in our database with EMR holdings at the end of the previous quarter. Our calculations also showed that EMR 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 let’s take a look at the new hedge fund action encompassing Emerson Electric Co. (NYSE:EMR).

What have hedge funds been doing with Emerson Electric Co. (NYSE:EMR)?

At the end of the fourth quarter, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in EMR 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.

More specifically, D E Shaw was the largest shareholder of Emerson Electric Co. (NYSE:EMR), with a stake worth $621.9 million reported as of the end of September. Trailing D E Shaw was Holocene Advisors, which amassed a stake valued at $131.5 million. Citadel Investment Group, Two Sigma Advisors, and Holocene Advisors 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 Galibier Capital Management allocated the biggest weight to Emerson Electric Co. (NYSE:EMR), around 4.5% of its 13F portfolio. Interval Partners is also relatively very bullish on the stock, setting aside 1.47 percent of its 13F equity portfolio to EMR.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Holocene Advisors, managed by Brandon Haley, established the largest position in Emerson Electric Co. (NYSE:EMR). Holocene Advisors had $55.1 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $10.8 million investment in the stock during the quarter. The following funds were also among the new EMR investors: Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, Jonathan Barrett and Paul Segal’s Luminus Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Emerson Electric Co. (NYSE:EMR) but similarly valued. We will take a look at The Bank of New York Mellon Corporation (NYSE:BK), Shopify Inc (NYSE:SHOP), Simon Property Group, Inc (NYSE:SPG), and UBS Group AG (NYSE:UBS). This group of stocks’ market valuations match EMR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BK 58 6711257 3
SHOP 30 3075550 -7
SPG 26 579726 -3
UBS 14 1045423 -2
Average 32 2852989 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $2853 million. That figure was $1165 million in EMR’s case. The Bank of New York Mellon Corporation (NYSE:BK) is the most popular stock in this table. On the other hand UBS Group AG (NYSE:UBS) is the least popular one with only 14 bullish hedge fund positions. Emerson Electric Co. (NYSE:EMR) 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 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately EMR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EMR were disappointed as the stock returned -29% 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.
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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