U.S airline stocks enjoyed strong rallies in 2013 and 2014, but suffered a disappointing 2015, with most airline stocks having ended the year in the red. Lower fuel costs and strong airline traffic did not provide these stocks with an expected boost, despite major airlines having posted record profits in 2015. Why? In a nutshell, investors have been paying more attention to PRASM, or passenger revenue divided by available seat miles, a metric that has been going in the wrong direction (south, that is), as opposed to revenue. Increased competition has led to companies transferring a portion of the benefit of lower fuel costs to passengers in the form of cheaper tickets. Currency headwinds and rising wages have also put pressure on air carriers. Nevertheless, investors are optimistic about U.S airline stocks going into 2016, and in this article we’ll look at how the crème de la crème of the investment world have positioned themselves in the sector.
At Insider Monkey, we track more than 700 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details here).
At the end of the fourth quarter, 38 top hedge funds in our system had JetBlue Airways Corporation (NASDAQ:JBLU) in their equity portfolios, down from 42 a quarter earlier. Together, these funds had control over 7.1% of the company’s common stock. Jim Simons‘ Renaissance Technologies reported a 22% increase in its holding of the stock, to 4.55 million shares worth roughly $103 million. Cliff Asness is also bullish on JetBlue Airways Corporation (NASDAQ:JBLU), having increased his stake by 163% to 4.49 million shares during the quarter. Although not a darling of the hedge fund world, JetBlue Airways Corporation (NASDAQ:JBLU) had a very good 2015, having ended the year up by 40.4%. The low cost carrier is pushing on with its aggressive expansion plans into Latin America, having recently announced daily flights from Miami’s Fort Lauderdale-Hollywood International Airport (FLL) to Quito’s Mariscal Sucre International Airport (UIO) in Ecuador.
Based on Insider Monkey’s database, 52 elite funds are betting on Southwest Airlines Co (NYSE:LUV) as of December 31, down from 54 at the end of September. John Armitage’s Egerton Capital Limited holds the largest stake in the company among the funds we follow, having reported ownership of 15.4 million shares in its latest 13F filing, down by 9% compared to the end of the third quarter. Doug Silverman and Alexander Klabin initiated a position in Southwest Airlines Co (NYSE:LUV) during the quarter, accumulating 2.5 million shares valued at $107 million. Analysts at Credit Suisse have assigned an ‘Outperform’ rating to Southwest Airlines Co (NYSE:LUV) and have a price target of $55.00 per share on it, while JPMorgan Chase & Co. has a similar rating of ‘Overweight’, but a slightly smaller price target of $52.00 per share. The stock is currently trading at $42.75 per share, up by 2.5% for the year.
Turn the page to find out the top-three airline stocks that smart money investors are betting on.