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Is Sturm, Ruger & Company (RGR) A Good Stock To Buy?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on Sturm, Ruger & Company (NYSE:RGR).

Sturm, Ruger & Company (NYSE:RGR) has experienced a decrease in enthusiasm from smart money of late. Our calculations also showed that RGR isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

RENAISSANCE TECHNOLOGIES

Let’s take a look at the new hedge fund action surrounding Sturm, Ruger & Company (NYSE:RGR).

How have hedgies been trading Sturm, Ruger & Company (NYSE:RGR)?

Heading into the fourth quarter of 2018, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the second quarter of 2018. By comparison, 14 hedge funds held shares or bullish call options in RGR heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with RGR Positions

More specifically, Renaissance Technologies was the largest shareholder of Sturm, Ruger & Company (NYSE:RGR), with a stake worth $50.5 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $8.2 million. Two Sigma Advisors, Millennium Management, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Because Sturm, Ruger & Company (NYSE:RGR) has faced falling interest from hedge fund managers, we can see that there lies a certain “tier” of funds that elected to cut their entire stakes last quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $2.3 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also said goodbye to its stock, about $0.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Sturm, Ruger & Company (NYSE:RGR) but similarly valued. We will take a look at Transenterix Inc (NYSEMKT:TRXC), Carbonite Inc (NASDAQ:CARB), Cellectis SA (NASDAQ:CLLS), and Emerald Expositions Events, Inc. (NYSE:EEX). This group of stocks’ market caps resemble RGR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRXC 14 30810 3
CARB 17 183901 0
CLLS 13 66403 -2
EEX 10 11933 5
Average 13.5 73262 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $83 million in RGR’s case. Carbonite Inc (NASDAQ:CARB) is the most popular stock in this table. On the other hand Emerald Expositions Events, Inc. (NYSE:EEX) is the least popular one with only 10 bullish hedge fund positions. Sturm, Ruger & Company (NYSE:RGR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CARB might be a better candidate to consider a long position.

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

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