Is SWBI A Good Stock To Buy Now?

After several tireless days we have finished crunching the numbers from nearly 817 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Smith & Wesson Brands, Inc. (NASDAQ:SWBI).

Is SWBI a good stock to buy now? Smith & Wesson Brands, Inc. (NASDAQ:SWBI) investors should be aware of a decrease in hedge fund interest of late. Smith & Wesson Brands, Inc. (NASDAQ:SWBI) was in 18 hedge funds’ portfolios at the end of September. The all time high for this statistic is 24. There were 24 hedge funds in our database with SWBI positions at the end of the second quarter. Our calculations also showed that SWBI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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 stocks that are in our short portfolio.


Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s review the fresh hedge fund action encompassing Smith & Wesson Brands, Inc. (NASDAQ:SWBI).

Do Hedge Funds Think SWBI Is A Good Stock To Buy Now?

At the end of September, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the second quarter of 2020. By comparison, 17 hedge funds held shares or bullish call options in SWBI a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SWBI A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Smith & Wesson Brands, Inc. (NASDAQ:SWBI), with a stake worth $79.6 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $6.8 million. Citadel Investment Group, G2 Investment Partners Management, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position G2 Investment Partners Management allocated the biggest weight to Smith & Wesson Brands, Inc. (NASDAQ:SWBI), around 0.79% of its 13F portfolio. Precept Capital Management is also relatively very bullish on the stock, setting aside 0.15 percent of its 13F equity portfolio to SWBI.

Due to the fact that Smith & Wesson Brands, Inc. (NASDAQ:SWBI) has witnessed falling interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedgies that decided to sell off their positions entirely last quarter. Interestingly, John Overdeck and David Siegel’s Two Sigma Advisors cut the largest stake of all the hedgies tracked by Insider Monkey, worth about $6 million in stock. Ben Gordon’s fund, Blue Grotto Capital, also cut its stock, about $3.4 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 6 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Smith & Wesson Brands, Inc. (NASDAQ:SWBI). We will take a look at Ultra Clean Holdings Inc (NASDAQ:UCTT), First Busey Corporation (NASDAQ:BUSE), iTeos Therapeutics, Inc. (NASDAQ:ITOS), Redwood Trust, Inc. (NYSE:RWT), Eagle Bancorp, Inc. (NASDAQ:EGBN), BGC Partners, Inc. (NASDAQ:BGCP), and John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS). All of these stocks’ market caps are similar to SWBI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UCTT 20 93359 -2
BUSE 15 31527 2
ITOS 11 191852 11
RWT 15 42065 -3
EGBN 13 16947 -2
BGCP 23 110947 -5
JBSS 14 67309 0
Average 15.9 79144 0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.9 hedge funds with bullish positions and the average amount invested in these stocks was $79 million. That figure was $103 million in SWBI’s case. BGC Partners, Inc. (NASDAQ:BGCP) is the most popular stock in this table. On the other hand iTeos Therapeutics, Inc. (NASDAQ:ITOS) is the least popular one with only 11 bullish hedge fund positions. Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SWBI is 50.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately SWBI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SWBI were disappointed as the stock returned -0.2% since the end of September (through 12/14) 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 so far this year.

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