It was a rather quiet weekend in terms of news flow. Nevertheless several meaningful events occurred that have caused several gun and industrial stocks to trend.
In this article, we’ll analyze why General Electric Company (NYSE:GE), RR Donnelley & Sons Co (NYSE:RRD), Smith & Wesson Holding Corp (NASDAQ:SWHC), Sturm, Ruger & Company (NYSE:RGR), and TASER International, Inc. (NASDAQ:TASR) are in the spotlight and use the latest hedge fund filings to determine how the smart money is positioned in each stock.
Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 750 hedge funds, whose quarterly 13F filings we analyze and determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (see the details here).
Although many investors regard General Electric Company (NYSE:GE) as a safer stock now that it is less finance-heavy and more industrial-focused, the credit analysts at S&P Global Ratings have lowered their rating on the company that Thomas Edison founded to ‘AA-‘ from ‘AA+’. The analysts cut their rating due to concerns that GE might take on additional debt to finance future acquisitions. The analysts said:
“We assume that the increase in the company’s leverage will, at least for the next couple of years, more likely stem from potential future acquisitions than substantial leveraged share repurchases or significant underfunded post-retirement benefit obligations.”
Shareholders hope the synergies and benefits from the potential acquisitions will more than offset the rise in interest rate costs due to the downgrade. Warren Buffett‘s Berkshire Hathaway owned 10.59 million shares of General Electric Company (NYSE:GE) at the end of June.
Due to its planned spin-off of certain divisions/assets on October 1, RR Donnelley & Sons Co (NYSE:RRD) is in the spotlight after the S&P indices announced that they will boot the company’s stock out of the S&P 400 and include it in the S&P 600 instead. The index change is expected to occur on September 27 after the market close. Due to the index change, there might be more volatility/volume in the stock than normal due to various institutions rebalancing their portfolios in regards to RR Donnelley.
The smart money was a little more optimistic on RR Donnelley & Sons Co (NYSE:RRD) in the second quarter. According to our database of 749 funds that filed 13Fs for the period, 25 were bullish on RR Donnelley & Sons Co (NYSE:RRD) at the end of June, up by three funds from the end of March.
On the next page, we’ll examine why Smith & Wesson Holding Corp, Sturm Ruger & Company, and TASER International Inc are trending.