This Metric Says You Are Smart to Sell AAR Corp. (AIR)

Should AAR Corp. (NYSE:AIR) investors track the following data?

Now, according to many of your fellow readers, hedge funds are seen as useless, old financial vehicles of an era lost to time. Although there are In excess of 8,000 hedge funds trading in present day, Insider Monkey focuses on the aristocrats of this group, around 525 funds. Analysts calculate that this group has its hands on the majority of all hedge funds’ total assets, and by watching their best equity investments, we’ve brought to light a number of investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).

Just as key, positive insider trading sentiment is a second way to analyze the financial markets. As the old adage goes: there are a number of incentives for an executive to drop shares of his or her company, but just one, very clear reason why they would initiate a purchase. Various academic studies have demonstrated the impressive potential of this method if shareholders understand where to look (learn more here).

Thus, we’re going to discuss the newest info about AAR Corp. (NYSE:AIR).

What have hedge funds been doing with AAR Corp. (NYSE:AIR)?

Heading into Q3, a total of 15 of the hedge funds we track were bullish in this stock, a change of -17% from one quarter earlier. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially.

When using filings from the hedgies we track, Diamond Hill Capital, managed by Ric Dillon, holds the biggest position in AAR Corp. (NYSE:AIR). Diamond Hill Capital has a $22 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Dreman Value Management, managed by David Dreman, which held a $11.3 million position; 0.4% of its 13F portfolio is allocated to the stock. Some other hedgies with similar optimism include D. E. Shaw’s D E Shaw, Ken Griffin’s Citadel Investment Group and Joel Greenblatt’s Gotham Asset Management.

Judging by the fact that AAR Corp. (NYSE:AIR) has experienced a fall in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of funds that decided to sell off their full holdings at the end of the second quarter. Intriguingly, Neil Chriss’s Hutchin Hill Capital said goodbye to the largest stake of the “upper crust” of funds we key on, totaling an estimated $1.1 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also dumped its stock, about $0.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds at the end of the second quarter.

Insider trading activity in AAR Corp. (NYSE:AIR)

Bullish insider trading is at its handiest when the primary stock in question has seen transactions within the past half-year. Over the latest 180-day time period, AAR Corp. (NYSE:AIR) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll also review the relationship between both of these indicators in other stocks similar to AAR Corp. (NYSE:AIR). These stocks are Astronics Corporation (NASDAQ:ATRO), Orbital Sciences Corp (NYSE:ORB), Sturm, Ruger & Company (NYSE:RGR), Kaman Corporation (NYSE:KAMN), and Smith & Wesson Holding Corporation (NASDAQ:SWHC). This group of stocks are in the aerospace/defense products & services industry and their market caps are closest to AIR’s market cap.

Using the returns shown by our research, average investors must always track hedge fund and insider trading activity, and AAR Corp. (NYSE:AIR) applies perfectly to this mantra.

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