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Were Hedge Funds Right About Piling Into Sturm, Ruger & Company (RGR)?

Debasis Saha

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Sturm, Ruger & Company (NYSE:RGR) in this article.

Sturm, Ruger & Company (NYSE:RGR) has seen an increase in activity from the world's largest hedge funds of late. RGR was in 16 hedge funds' portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with RGR holdings 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 Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]

RENAISSANCE TECHNOLOGIES

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's analyze the fresh hedge fund action encompassing Sturm, Ruger & Company (NYSE:RGR).

How are hedge funds trading Sturm, Ruger & Company (NYSE:RGR)?

At Q3's end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RGR over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is RGR A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the biggest position in Sturm, Ruger & Company (NYSE:RGR), worth close to $58.7 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $9 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism encompass Ken Griffin's Citadel Investment Group, Sander Gerber's Hudson Bay Capital Management and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Sturm, Ruger & Company (NYSE:RGR), around 0.16% of its 13F portfolio. Hudson Bay Capital Management is also relatively very bullish on the stock, designating 0.12 percent of its 13F equity portfolio to RGR.

As one would reasonably expect, specific money managers have been driving this bullishness. Hudson Bay Capital Management, managed by Sander Gerber, created the biggest position in Sturm, Ruger & Company (NYSE:RGR). Hudson Bay Capital Management had $4.4 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $1.4 million position during the quarter. The other funds with new positions in the stock are Minhua Zhang's Weld Capital Management and Benjamin A. Smith's Laurion Capital Management.

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. We will take a look at Oaktree Specialty Lending Corporation (NASDAQ:OCSL), Regis Corporation (NYSE:RGS), Live Oak Bancshares Inc (NASDAQ:LOB), and Glu Mobile Inc. (NASDAQ:GLUU). This group of stocks' market caps are closest to RGR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OCSL,18,74388,1 RGS,13,289738,-1 LOB,10,36893,4 GLUU,22,87877,-1 Average,15.75,122224,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $88 million in RGR's case. Glu Mobile Inc. (NASDAQ:GLUU) is the most popular stock in this table. On the other hand Live Oak Bancshares Inc (NASDAQ:LOB) is the least popular one with only 10 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on RGR, though not to the same extent, as the stock returned 9.3% during the first two months of the fourth quarter and outperformed the market as well.

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

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