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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about American Outdoor Brands, Inc. (NASDAQ:AOUT).
Is AOUT a good stock to buy now? The best stock pickers were betting on the stock. The number of long hedge fund positions inched up by 10 in recent months. American Outdoor Brands, Inc. (NASDAQ:AOUT) was in 10 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that AOUT isn't among the 30 most popular stocks among hedge funds (click for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's review the key hedge fund action encompassing American Outdoor Brands, Inc. (NASDAQ:AOUT).
Do Hedge Funds Think AOUT Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10 from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in AOUT over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in American Outdoor Brands, Inc. (NASDAQ:AOUT) was held by Renaissance Technologies, which reported holding $12 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $3 million position. Other investors bullish on the company included Newtyn Management, One Fin Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position One Fin Capital Management allocated the biggest weight to American Outdoor Brands, Inc. (NASDAQ:AOUT), around 1.73% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, earmarking 0.7 percent of its 13F equity portfolio to AOUT.
As one would reasonably expect, key money managers have been driving this bullishness. Renaissance Technologies, initiated the biggest position in American Outdoor Brands, Inc. (NASDAQ:AOUT). Renaissance Technologies had $12 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $3 million position during the quarter. The other funds with new positions in the stock are Noah Levy and Eugene Dozortsev's Newtyn Management, David MacKnight's One Fin Capital Management, and Israel Englander's Millennium Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as American Outdoor Brands, Inc. (NASDAQ:AOUT) but similarly valued. We will take a look at Danaos Corporation (NYSE:DAC), SM Energy Company (NYSE:SM), Rocky Brands, Inc. (NASDAQ:RCKY), SuRo Capital Corp. (NASDAQ:SSSS), Spok Holdings Inc (NASDAQ:SPOK), Exfo Inc (NASDAQ:EXFO), and ACNB Corporation (NASDAQ:ACNB). All of these stocks' market caps resemble AOUT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DAC,6,13566,2 SM,15,29654,-3 RCKY,8,13590,1 SSSS,8,8762,2 SPOK,14,20602,2 EXFO,1,3274,0 ACNB,1,1084,0 Average,7.6,12933,0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.6 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $22 million in AOUT's case. SM Energy Company (NYSE:SM) is the most popular stock in this table. On the other hand Exfo Inc (NASDAQ:EXFO) is the least popular one with only 1 bullish hedge fund positions. American Outdoor Brands, Inc. (NASDAQ:AOUT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AOUT is 61.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately AOUT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AOUT were disappointed as the stock returned 6.7% since the end of September (through 12/8) 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.
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Disclosure: None. This article was originally published at Insider Monkey.