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.
Smith & Wesson Holding Corp (NASDAQ:SWHC) shares have fallen by 3.85% this morning after the company’s proposed Modular Handgun System to replace the current M9 failed to advance to the next stage in terms of bidding/competition. Although Smith & Wesson’s management never included potential sales from the Modular Handgun System in the company’s financial guidance, some traders in the market clearly did and were disappointed by the news. 20 funds that we track were long Smith & Wesson Holding Corp (NASDAQ:SWHC) at the end of the second quarter, down by four quarter-over-quarter.
Sturm, Ruger & Company (NYSE:RGR) is trending after another mass shooting occurred, this time in Washington State. The shootings happened on Friday at a mall in Burlington, north of Seattle, which led to the deaths of five people. In past instances, gun stocks have rallied due to news of shootings, as some civilians buy more guns to protect themselves. Whether a noteworthy rally will happen again given the spate of shooting incidents over the past year is debatable, and does not appear to be the case in early morning trading. The number of funds with holdings in Sturm, Ruger & Company (NYSE:RGR) fell by one during the second quarter to 16 at the end of June.
In addition to Sturm, Ruger & Company, traders will be watching TASER International, Inc. (NASDAQ:TASR) on Monday as controversy continues to swirl around the shooting of a Charlotte man by police after the victim’s wife released phone footage of the incident. Because the policeman who shot the civilian did not have a body camera on, the police could not conclusively prove (as of yet) that the man who was shot was carrying a gun. Some traders think demand for police body cameras will likely increase due to the event. Ten of the funds that we track owned $54.85 million of TASER International, Inc. (NASDAQ:TASR) shares at the end of June, which accounted for 4.20% of the float on June 30.