In this article we will check out the progression of hedge fund sentiment towards Smith & Wesson Brands, Inc. (NASDAQ:AOBC) 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.
Is Smith & Wesson Brands, Inc. (NASDAQ:AOBC) ready to rally soon? The smart money is getting more optimistic. The number of long hedge fund positions advanced by 11 lately. Our calculations also showed that AOBC 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). AOBC was in 22 hedge funds' portfolios at the end of the first quarter of 2020. There were 11 hedge funds in our database with AOBC positions at the end of the previous quarter. 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 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_365194" align="aligncenter" width="396"] David E. Shaw of D.E. Shaw[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the 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 regarding Smith & Wesson Brands, Inc. (NASDAQ:AOBC).
Hedge fund activity in Smith & Wesson Brands, Inc. (NASDAQ:AOBC)
At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 100% from the fourth quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in AOBC a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Smith & Wesson Brands, Inc. (NASDAQ:AOBC), with a stake worth $24.2 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $4.1 million. Alden Global Capital, D E Shaw, and Blue Grotto Capital 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 Blue Grotto Capital allocated the biggest weight to Smith & Wesson Brands, Inc. (NASDAQ:AOBC), around 2.07% of its 13F portfolio. Alden Global Capital is also relatively very bullish on the stock, designating 1.23 percent of its 13F equity portfolio to AOBC.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Millennium Management, managed by Israel Englander, created the most outsized position in Smith & Wesson Brands, Inc. (NASDAQ:AOBC). Millennium Management had $4.1 million invested in the company at the end of the quarter. Ben Gordon's Blue Grotto Capital also made a $2.8 million investment in the stock during the quarter. The following funds were also among the new AOBC investors: Brett Hendrickson's Nokomis Capital, George Baxter's Sabrepoint Capital, and Mark Coe's Intrinsic Edge Capital.
Let's also examine hedge fund activity in other stocks similar to Smith & Wesson Brands, Inc. (NASDAQ:AOBC). These stocks are First Foundation Inc (NASDAQ:FFWM), MGP Ingredients Inc (NASDAQ:MGPI), The Shyft Group, Inc. (NASDAQ:SPAR), and Heritage Commerce Corp. (NASDAQ:HTBK). All of these stocks' market caps match AOBC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FFWM,12,20576,-1 MGPI,11,10980,-4 SPAR,17,57823,-1 HTBK,9,15364,-4 Average,12.25,26186,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $56 million in AOBC's case. The Shyft Group, Inc. (NASDAQ:SPAR) is the most popular stock in this table. On the other hand Heritage Commerce Corp. (NASDAQ:HTBK) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Smith & Wesson Brands, Inc. (NASDAQ:AOBC) is more popular among hedge funds. 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 returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on AOBC as the stock returned 99.8% so far in Q2 (through June 10th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.