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Hedge Funds Are Buying Smith & Wesson Brands, Inc. (SWBI)

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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Smith & Wesson Brands, Inc. (NASDAQ:SWBI).

Is Smith & Wesson Brands, Inc. (NASDAQ:SWBI) ready to rally soon? The best stock pickers were in a bullish mood. The number of long hedge fund positions inched up by 3 in recent months. Smith & Wesson Brands, Inc. (NASDAQ:SWBI) was in 21 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 24. Our calculations also showed that SWBI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

If you'd ask most investors, hedge funds are seen as worthless, outdated financial vehicles of the past. While there are over 8000 funds with their doors open at present, Our experts look at the leaders of this group, about 850 funds. It is estimated that this group of investors watch over bulk of the hedge fund industry's total asset base, and by keeping track of their top investments, Insider Monkey has identified a number of investment strategies that have historically beaten the S&P 500 index. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Noam Gottesman GLG Partners
Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let's analyze the latest hedge fund action surrounding Smith & Wesson Brands, Inc. (NASDAQ:SWBI).

Do Hedge Funds Think SWBI Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in SWBI a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is SWBI A Good Stock To Buy?
Is SWBI A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Smith & Wesson Brands, Inc. (NASDAQ:SWBI), with a stake worth $145.6 million reported as of the end of June. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $30.3 million. GLG Partners, Citadel Investment Group, and Millennium 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 Navellier & Associates allocated the biggest weight to Smith & Wesson Brands, Inc. (NASDAQ:SWBI), around 0.77% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.18 percent of its 13F equity portfolio to SWBI.

As industrywide interest jumped, specific money managers have jumped into Smith & Wesson Brands, Inc. (NASDAQ:SWBI) headfirst. PEAK6 Capital Management, managed by Matthew Hulsizer, initiated the biggest call position in Smith & Wesson Brands, Inc. (NASDAQ:SWBI). PEAK6 Capital Management had $8.7 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also made a $1.5 million investment in the stock during the quarter. The other funds with brand new SWBI positions are Brandon Haley's Holocene Advisors and Peter Algert's Algert Global.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Smith & Wesson Brands, Inc. (NASDAQ:SWBI) but similarly valued. These stocks are Alector, Inc. (NASDAQ:ALEC), Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), Anavex Life Sciences Corp. (NASDAQ:AVXL), ICF International Inc (NASDAQ:ICFI), Compass Diversified Holdings (NYSE:CODI), Kronos Worldwide, Inc. (NYSE:KRO), and Regenxbio Inc (NASDAQ:RGNX). All of these stocks' market caps match SWBI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALEC,18,218745,3 AUPH,18,173527,-9 AVXL,6,6987,1 ICFI,10,30014,-2 CODI,4,44377,-1 KRO,11,24850,2 RGNX,15,195730,-7 Average,11.7,99176,-1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.7 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $243 million in SWBI's case. Alector, Inc. (NASDAQ:ALEC) is the most popular stock in this table. On the other hand Compass Diversified Holdings (NYSE:CODI) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is more popular among hedge funds. Our overall hedge fund sentiment score for SWBI is 84.3. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Unfortunately SWBI wasn't nearly as popular as these 5 stocks and hedge funds that were betting on SWBI were disappointed as the stock returned -37.6% since the end of the second quarter (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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