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Do Hedge Funds Love Sturm, Ruger & Company, Inc. (RGR)?

Abigail Fisher

In this article we will check out the progression of hedge fund sentiment towards Sturm, Ruger & Company, Inc. (NYSE:RGR) and determine whether it 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.

Sturm, Ruger & Company, Inc. (NYSE:RGR) was in 14 hedge funds' portfolios at the end of the first quarter of 2020. RGR has experienced an increase in hedge fund interest in recent months. There were 12 hedge funds in our database with RGR positions at the end of the previous quarter. Our calculations also showed that RGR isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

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 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_735536" align="aligncenter" width="397"] Sander Gerber of Hudson Bay Capital Management[/caption]

Sander Gerber Hudson Bay Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to review the fresh hedge fund action surrounding Sturm, Ruger & Company, Inc. (NYSE:RGR).

What does smart money think about Sturm, Ruger & Company, Inc. (NYSE:RGR)?

At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RGR over the last 18 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the largest position in Sturm, Ruger & Company, Inc. (NYSE:RGR), worth close to $72.9 million, comprising 0.1% of its total 13F portfolio. Coming in second is Winton Capital Management, managed by David Harding, which holds a $9.6 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions include John Overdeck and David Siegel's Two Sigma Advisors, and George Baxter's Sabrepoint Capital. In terms of the portfolio weights assigned to each position Sabrepoint Capital allocated the biggest weight to Sturm, Ruger & Company, Inc. (NYSE:RGR), around 1.54% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.25 percent of its 13F equity portfolio to RGR.

Now, key hedge funds were breaking ground themselves. Sabrepoint Capital, managed by George Baxter, created the biggest position in Sturm, Ruger & Company, Inc. (NYSE:RGR). Sabrepoint Capital had $3.8 million invested in the company at the end of the quarter. Sander Gerber's Hudson Bay Capital Management also made a $1.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Benjamin A. Smith's Laurion Capital Management and Hoon Kim's Quantinno Capital.

Let's go over hedge fund activity in other stocks similar to Sturm, Ruger & Company, Inc. (NYSE:RGR). These stocks are Service Properties Trust (NASDAQ:SVC), Odonate Therapeutics, Inc. (NASDAQ:ODT), Immunovant, Inc. (NASDAQ:IMVT), and Spirit Airlines Incorporated (NYSE:SAVE). This group of stocks' market valuations resemble RGR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SVC,23,30778,6 ODT,13,471188,-2 IMVT,28,146496,6 SAVE,28,86042,-9 Average,23,183626,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $103 million in RGR's case. Immunovant, Inc. (NASDAQ:IMVT) is the most popular stock in this table. On the other hand Odonate Therapeutics, Inc. (NASDAQ:ODT) is the least popular one with only 13 bullish hedge fund positions. Sturm, Ruger & Company, Inc. (NYSE:RGR) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on RGR as the stock returned 38.3% during the second quarter and outperformed the market by an even larger margin.

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

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