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AAR Corp. (NYSE:AIR): Hedge Funds and Insiders Are Bearish, What Should You Do? – Orbital Sciences Corp (NYSE:ORB), Sturm, Ruger & Company (NYSE:RGR)

Is AAR Corp. (NYSE:AIR) a good investment now? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund bets shrunk by 2 in recent months.

AAR Corp. (NYSE:AIR)

In the eyes of most stock holders, hedge funds are perceived as slow, old investment tools of yesteryear. While there are more than 8000 funds trading at present, we hone in on the crème de la crème of this club, about 450 funds. It is widely believed that this group has its hands on the lion’s share of the smart money’s total capital, and by watching their top equity investments, we have brought to light a few investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 25 percentage points in 6.5 month (explore the details and some picks here).

Equally as beneficial, positive insider trading sentiment is another way to break down the stock market universe. As the old adage goes: there are a number of motivations for an insider to sell shares of his or her company, but only one, very obvious reason why they would initiate a purchase. Various academic studies have demonstrated the market-beating potential of this strategy if you understand what to do (learn more here).

With all of this in mind, we’re going to take a look at the key action regarding AAR Corp. (NYSE:AIR).

What does the smart money think about AAR Corp. (NYSE:AIR)?

In preparation for this year, a total of 13 of the hedge funds we track were bullish in this stock, a change of -13% from the third quarter. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly.

When looking at the hedgies we track, Diamond Hill Capital, managed by Ric Dillon, holds the largest position in AAR Corp. (NYSE:AIR). Diamond Hill Capital has a $20 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, managed by D. E. Shaw, which held a $7 million position; the fund has 0% of its 13F portfolio invested in the stock. Other hedgies that are bullish include Jim Simons’s Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management.

Judging by the fact that AAR Corp. (NYSE:AIR) has experienced declining sentiment from the smart money, it’s easy to see that there were a few funds that elected to cut their entire stakes heading into 2013. It’s worth mentioning that Ken Grossman and Glen Schneider’s SG Capital Management sold off the biggest stake of the 450+ funds we monitor, comprising an estimated $5 million in stock.. Mike Vranos’s fund, Ellington, also cut its stock, about $0 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds heading into 2013.

Insider trading activity in AAR Corp. (NYSE:AIR)

Insider purchases made by high-level executives is best served when the company in focus has seen transactions within the past 180 days. Over the latest six-month time frame, AAR Corp. (NYSE:AIR) has seen zero unique insiders buying, and 4 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to AAR Corp. (NYSE:AIR). These stocks are Astronics Corporation (NASDAQ:ATRO), Orbital Sciences Corp (NYSE:ORB), Sturm, Ruger & Company (NYSE:RGR), Kaman Corporation (NYSE:KAMN), and Smith & Wesson Holding Corporation (NASDAQ:SWHC). This group of stocks are the members of the aerospace/defense products & services industry and their market caps resemble AIR’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
Astronics Corporation (NASDAQ:ATRO) 6 0 2
Orbital Sciences Corp (NYSE:ORB) 9 0 5
Sturm, Ruger & Company (NYSE:RGR) 15 0 11
Kaman Corporation (NYSE:KAMN) 7 1 2
Smith & Wesson Holding Corporation (NASDAQ:SWHC) 14 1 2

With the returns shown by Insider Monkey’s tactics, everyday investors must always keep an eye on hedge fund and insider trading activity, and AAR Corp. (NYSE:AIR) is an important part of this process.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

Insider Monkey’s small-cap strategy returned 37% between September 2012 and March 2013 versus 12.9% for the S&P 500 index. Try it now by clicking the link above.

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