What Hedge Funds Think of Firearms Stocks

Earlier this month, the FBI’s National Instant Criminal Background Check System, or NICS, revealed that firearm background checks in May fell by nearly 13% relative to the previous month, which put significant weight on the stock performance of most publicly-traded gun makers. The Federal Bureau of Investigation reported 1.87 million background checks in May, as compared to 2.15 million recorded in April. The May figure was significantly below the range of $2.5 million to $2.6 million registered in each month of the first quarter of 2016. However, one should keep in mind that NICS is only used to determine whether a prospective buyer is eligible to buy firearms, so FBI’s data does not represent the actual number of firearms sold. Although May did not reach the 2 million level, 2016 remains on track to being a record breaking year for background checks. With that in mind, let’s have a look at what the hedge funds tracked by Insider Monkey think of firearms stocks by examining the hedge fund sentiment towards five such stocks.

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#5. ARC Group WorldWide Inc. (NASDAQ:ARCW)

– Investors with long positions as of March 31: 3

– Aggregate value of investors’ holdings as of March 31: $3.25 Million

There were a mere three hedge funds monitored by Insider Monkey with long positions in ARC Group WorldWide Inc. (NASDAQ:ARCW) at the end of the March quarter, as compared to two funds at the end of the December quarter. The aggregate value of those positions rose to $3.25 million from $1.99 million. The three funds invested in ARC Group stockpiled nearly 7% of the company’s outstanding shares. While ARC Group is not necessarily a gun maker, the company provides complex, precision, net-shape metal components to companies in numerous industries including firearms and defense. The advanced manufacturer has seen its shares gain 40% since the beginning of 2016. ARC Group’s sales for the three months that ended March 27 were $26.5 million, down from $27.9 million recorded for the same period of the prior year. First Eagle Investment Management, overseen by President and CEO Mehdi Mahmud, owns 1.15 million shares of ARC Group WorldWide Inc. (NASDAQ:ARCW) as of the end of the first quarter.

#4. Sturm, Ruger & Company (NYSE:RGR)

– Investors with long positions as of March 31: 17

– Aggregate value of investors’ holdings as of March 31: $88.18 Million

The smart money sentiment towards Sturm, Ruger & Company (NYSE:RGR) increased during the first three months of 2016, when the number of hedge funds from our database with stakes in the company climbed to 17 from 14 quarter-over-quarter. Nevertheless, the overall value of those stakes shrunk to $88.18 million from $90.68 million even though the shares of the U.S. gun manufacturer gained 15% for the quarter. Thus, the hedge funds tracked by our team were actually trimming their exposure to the company during the first quarter. The shares of the designer and manufacturer of firearms have plunged by 9% over the past five trading sessions because of the data showing a lower number of would-be buyers who had received background checks. The stock is up a little less than 1% for the year. Sturm, Ruger & Company’s firearms net sales for the three months that ended April 2 were $171.5 million, which increased by an impressive 26.5% year-over-year. Ken Griffin’s Citadel Advisors LLC was the owner of nearly 76,000 shares of Sturm, Ruger & Company (NYSE:RGR) at the end of March.

#3. Vista Outdoor Inc. (NYSE:VSTO)

– Investors with long positions as of March 31: 23

– Aggregate value of investors’ holdings as of March 31: $769.41 Million

The number of asset managers from our system with stakes in Vista Outdoor Inc. (NYSE:VSTO) remained unchanged during the first quarter at 23, while the aggregate value of those stakes jumped to $769.41 million from $757.93 million. The 23 asset managers invested in Vista Outdoor accumulated roughly 24% of the company’s total number of outstanding shares. The designer and manufacturer of consumer products in the outdoor sports and recreation markets, which also sells sporting ammunition and firearms, has seen its market value jump by nearly 8% since the beginning of 2016. Vista Outdoor had annual sales of $2.27 billion for fiscal year that ended March 31, up from $2.08 billion reported for the previous fiscal year. The increase was mainly attributable to the acquisition of CamelBak Products LLC, a provider of hydration system solutions, the acquisition of Jimmy Styks, a designer and marketer of stand-up paddle boards, as well as higher demand within the shooting sports market. Iridian Asset Management, founded by David Cohen and Harold Levy, has 1.96 million shares of Vista Outdoor Inc. (NYSE:VSTO) among its pool of holdings as of the end of the March quarter.

#2. Smith & Wesson Holding Corp (NASDAQ:SWHC)

– Investors with long positions as of March 31: 24

– Aggregate value of investors’ holdings as of March 31: $121.78 Million

Smith & Wesson Holding Corp (NASDAQ:SWHC) has somewhat fell out of favor with the hedge fund managers monitored by our team, as the number of managers with stakes in the U.S. manufacturer of firearms dropped to 24 from 27 quarter-on-quarter. Meanwhile, the dollar value of those stakes declined by 12% quarter-on-quarter to $121.78 million even if the company’s shares gained a whopping 21% during the first quarter. Roughly 8% of the company’s outstanding common stock were hoarded up by the 24 hedge funds followed by our team. Although the U.S. president, Barack Obama, has been a strong proponent of more gun controls, demand for the gun maker’s products does not show signs of weakness. Smith & Wesson posted net sales of $210.8 million for the three months that ended January 31, up an impressive $80.2 million relative to the same period of the previous year. The gun maker’s shares are down 2% year-to-date. Columbus Circle Investors, managed by Clifford G. Fox, owned 474,369 shares of Smith & Wesson Holding Corp (NASDAQ:SWHC) at the end of March.

#1. Dicks Sporting Goods Inc. (NYSE:DKS)

– Investors with long positions as of March 31: 35

– Aggregate value of investors’ holdings as of March 31: $508.62 Million

Dicks Sporting Goods Inc. (NYSE:DKS) was a hedge fund darling during the first three months of 2016, as the number funds from our system with equity investments in the company spiked to 35 from 26 quarter-on-quarter. Similarly, the aggregate value of those equity investments rose by 49% quarter-over-quarter to $508.62 million, partially owing to a nearly 33% price appreciation of the company’ shares during the March quarter. The 35 hedge fund vehicles invested in Dicks Sporting Goods stockpiled almost one-tenth of the company’s outstanding shares. The shares of the omni-channel sporting goods retailer, which also sells guns and ammo, are up 20% thus far in 2016. Just recently, Dick’s Sporting Goods said the massive liquidation sale kicked off by retailer of sporting goods Sports Authority, which filed for Chapter 11 bankruptcy in March, will most likely impact its performance in the foreseeable future. As a result, Dick’s Sporting Goods downwardly revised its guidance due to a possible glut of cheap sporting equipment. Ken Griffin’s Citadel Advisors LLC acquired a new stake of 2.14 million shares of Dicks Sporting Goods Inc. (NYSE:DKS) during the March quarter.

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