Is Sturm, Ruger & Company (NYSE:RGR) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing 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 have 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.
Hedge fund interest in Sturm, Ruger & Company (NYSE:RGR) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Boise Cascade Co (NYSE:BCC), Hess Midstream Partners LP (NYSE:HESM), and Benchmark Electronics, Inc. (NYSE:BHE) to gather more data points.
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 32 percentage points since May 2014 through March 12, 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.
We're going to take a gander at the new hedge fund action encompassing Sturm, Ruger & Company (NYSE:RGR).
How have hedgies been trading Sturm, Ruger & Company (NYSE:RGR)?
Heading into the first quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RGR over the last 14 quarters. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jim Simons's Renaissance Technologies has the largest position in Sturm, Ruger & Company (NYSE:RGR), worth close to $59 million, corresponding to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Israel Englander of Millennium Management, with a $6 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish comprise Ken Griffin's Citadel Investment Group, Cliff Asness's AQR Capital Management and John Overdeck and David Siegel's Two Sigma Advisors.
Judging by the fact that Sturm, Ruger & Company (NYSE:RGR) has witnessed a decline in interest from the smart money, logic holds that there was a specific group of money managers who were dropping their full holdings last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the biggest investment of all the hedgies followed by Insider Monkey, worth close to $3.4 million in call options, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund sold off about $3.1 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Sturm, Ruger & Company (NYSE:RGR) but similarly valued. These stocks are Boise Cascade Co (NYSE:BCC), Hess Midstream Partners LP (NYSE:HESM), Benchmark Electronics, Inc. (NYSE:BHE), and Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM). This group of stocks' market values match RGR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCC,15,42385,-7 HESM,6,5372,0 BHE,12,105172,-1 RYTM,10,189107,-5 Average,10.75,85509,-3.25 [/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 $86 million. That figure was $86 million in RGR's case. Boise Cascade Co (NYSE:BCC) is the most popular stock in this table. On the other hand Hess Midstream Partners LP (NYSE:HESM) is the least popular one with only 6 bullish hedge fund positions. Sturm, Ruger & Company (NYSE:RGR) is not the most popular stock in this group but hedge fund interest is still above average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately RGR wasn't nearly as popular as these 15 stock and hedge funds that were betting on RGR were disappointed as the stock returned 1.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.