General Dynamics Corporation (GD) Lands $219M US Army Contract: Is It A Buy?

Is General Dynamics Corporation (NYSE:GD) a buy especially as the company has just revealed that it landed a $219 million U.S. Army order? According to the aerospace and defense company, the U.S. Army has tasked them to construct additional Warfighter Information Network – Tactical (WIN-T) Increment 2 systems. The said amount is for the production of over 300 vehicle-based communication nodes. The WIN-T is an integral part of the secure on-the-go, mission command and situational awareness communications system of the U.S. Army being described by General Dynamics as a backbone of the whole communications system.

Meanwhile, General Dynamics Corporation (NYSE:GD) has been given an “A” credit rating and a three-star stock rating by Morningstar on Tuesday. The credit rating means General Dynamics is at low risk of defaulting. Shares of the defense company have climbed 4.23% year-to-date. In the last 52 weeks, the stock advanced by 14.72%. General Dynamics Corporation (NYSE:GD) has also seen an increase in enthusiasm from smart money of late.

General Dynamics Corporation (GD), NYSE:GD,

First, a quick word on why we track hedge fund activity. In 2014, equity hedge funds returned just 1.4%. In 2013, that figure was 11.3%, and in 2012, they returned just 4.8%. These are embarrassingly low figures compared to the S&P 500 ETF (SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012. Does this mean that hedge fund managers lost their touch when it comes to picking stocks? The answer is definitely no. Our small-cap hedge fund strategy – which identifies the best small-cap stock picks of the best hedge fund managers – returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012, outperforming the market each year (it’s outperforming it so far in 2015 too). What’s the reason for this discrepancy, you may ask? The reason is simple: size. Hedge funds have gotten so large, they have to allocate the majority of their money into large-cap liquid stocks that are more efficiently priced. They are like mutual funds now. Consider Ray Dalio’s Bridgewater Associates, the largest in the industry with about $165 billion in AUM. It can’t allocate too much money into a small-cap stock as merely obtaining 2% exposure would really move the price. In fact, Dalio can’t even obtain 2% exposure to many small-cap stocks, even if he essentially owned the entire company, as they’re simply too small (or rather, his fund is too big). This is where we come in. Our research has shown that it is actually hedge funds’ small-cap picks that are their best performing ones and we have consistently identified the best picks of the best managers, returning 144% since the launch of our small-cap strategy compared to less than 60% for the S&P 500 (see the details).

In terms of insider sentiment, Executive Vice President Joseph Lombardo sold 87,630 shares at the beginning of May. By the end of the same month, Vice President Larry Flynn sold 57,340 shares in two transactions. Insider Monkey also looks into insider sentiment since this can indicate whether insiders are also betting on their own companies.

Keeping this in mind, let’s take a look at the fresh action about General Dynamics Corporation (NYSE:GD).

 How have hedgies been trading General Dynamics Corporation (NYSE:GD)?

Among the hedge funds tracked by Insider Monkey, General Dynamics was included in 45 equity portfolios at the end of March compared to 43 at the end of the previous quarter. The value of holdings of those funds increased to $6.76 billion in the first quarter from $6.33 billion a quarter earlier, a 6.71% increase that is worth pointing out since the stock declined 1.37% from January 2 to March 31.

According to Insider Monkey, Longview Asset Management, managed by James A. Star, holds the most valuable position in General Dynamics Corporation (NYSE:GD), worth $4.52 billion, which contains about 33.33 million shares, making up 97.7% of its 13F portfolio. Sitting on the second spot is Citadel Investment Group, managed by Ken Griffin, which held a $301.1 million position with 2.22 million shares. Other hedge funds that are bullish include David E. Shaw’s D.E. Shaw & Co., L.P., Cliff Asness’s AQR Capital Management and Zach Schreiber’s Point State Capital.

With heavyweights betting on the firm, key hedge funds have jumped in General Dynamics Corporation (NYSE:GD) headfirst. Scopus Asset Management, managed by Alexander Mitchell, initiated the most valuable position in General Dynamics Corporation (NYSE:GD) among the funds we track. Scopus Asset Management had a $43 million stake with 317,000 shares at the end of the quarter, while Steve Cohen’s Point72 Asset Management owns 306,700 shares worth $41.6 million investment. The other funds with new positions in the stock are Noam Gottesman’s GLG Partners, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Peter Muller’s PDT Partners.

The general bullishness both in terms of the number of hedge funds with long positions in the stock as well as the growth of the aggregate value of holdings by the end of the first quarter makes General Dynamics Corporation (NYSE:GD) appear to be a good buy at the moment based on our smart money indicators.

Disclosure: None