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Hedge Funds Have Never Been More Bullish On Sturm, Ruger & Company, Inc. (RGR)

Nina Todic

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Sturm, Ruger & Company, Inc. (NYSE:RGR).

Is Sturm, Ruger & Company, Inc. (NYSE:RGR) a superb investment today? Prominent investors are betting on the stock. The number of long hedge fund bets improved by 3 recently. Our calculations also showed that rgr isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

Let's take a look at the recent hedge fund action regarding Sturm, Ruger & Company, Inc. (NYSE:RGR).

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

Heading into the second quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in RGR a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with RGR Positions

Of the funds tracked by Insider Monkey, Jim Simons's Renaissance Technologies has the largest position in Sturm, Ruger & Company, Inc. (NYSE:RGR), worth close to $72.9 million, accounting for 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $14 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other peers with similar optimism contain Cliff Asness's AQR Capital Management, Ken Griffin's Citadel Investment Group and Israel Englander's Millennium Management.

Now, key money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Sturm, Ruger & Company, Inc. (NYSE:RGR). Arrowstreet Capital had $14 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $1.7 million position during the quarter. The following funds were also among the new RGR investors: Benjamin A. Smith's Laurion Capital Management, David Harding's Winton Capital Management, and Michael Platt and William Reeves's BlueCrest Capital Mgmt..

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Sturm, Ruger & Company, Inc. (NYSE:RGR) but similarly valued. These stocks are Genfit SA (NASDAQ:GNFT), InfraREIT, Inc. (REIT) (NYSE:HIFR), ScanSource, Inc. (NASDAQ:SCSC), and SunPower Corporation (NASDAQ:SPWR). All of these stocks' market caps match RGR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GNFT,10,90626,10 HIFR,14,190869,-1 SCSC,10,49992,-2 SPWR,9,36580,1 Average,10.75,92017,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $111 million in RGR's case. InfraREIT, Inc. (REIT) (NYSE:HIFR) is the most popular stock in this table. On the other hand SunPower Corporation (NASDAQ:SPWR) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Sturm, Ruger & Company, Inc. (NYSE:RGR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately RGR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RGR were disappointed as the stock returned -1.3% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.

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

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