American Outdoor Brands Corporation (AOBC) Is Burning These Hedge Funds

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards American Outdoor Brands Corporation (NASDAQ:AOBC).

American Outdoor Brands Corporation (NASDAQ:AOBC) was in 16 hedge funds’ portfolios at the end of June. AOBC investors should pay attention to an increase in hedge fund sentiment lately. There were 15 hedge funds in our database with AOBC holdings at the end of the previous quarter. Our calculations also showed that AOBC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

D. E. Shaw

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the key hedge fund action encompassing American Outdoor Brands Corporation (NASDAQ:AOBC).

Hedge fund activity in American Outdoor Brands Corporation (NASDAQ:AOBC)

At the end of the second quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in AOBC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with AOBC Positions

The largest stake in American Outdoor Brands Corporation (NASDAQ:AOBC) was held by Renaissance Technologies, which reported holding $33.2 million worth of stock at the end of March. It was followed by D E Shaw with a $14.3 million position. Other investors bullish on the company included Arrowstreet Capital, Greenhouse Funds, and Dorset Management.

As aggregate interest increased, some big names were breaking ground themselves. Hudson Bay Capital Management, managed by Sander Gerber, initiated the largest position in American Outdoor Brands Corporation (NASDAQ:AOBC). Hudson Bay Capital Management had $0.5 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.5 million investment in the stock during the quarter. The other funds with brand new AOBC positions are Mike Vranos’s Ellington and Cliff Asness’s AQR Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as American Outdoor Brands Corporation (NASDAQ:AOBC) but similarly valued. These stocks are The Hackett Group, Inc. (NASDAQ:HCKT), ShotSpotter, Inc. (NASDAQ:SSTI), Pennsylvania Real Estate Investment Trust (NYSE:PEI), and Century Bancorp, Inc. (NASDAQ:CNBKA). This group of stocks’ market valuations match AOBC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HCKT 15 77610 5
SSTI 6 23044 -1
PEI 6 10259 -2
CNBKA 3 14692 1
Average 7.5 31401 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $85 million in AOBC’s case. The Hackett Group, Inc. (NASDAQ:HCKT) is the most popular stock in this table. On the other hand Century Bancorp, Inc. (NASDAQ:CNBKA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks American Outdoor Brands Corporation (NASDAQ:AOBC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AOBC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AOBC were disappointed as the stock returned -35.1% during the third quarter 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 many of these stocks already outperformed the market in Q3.

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