These Two Stocks are in Spotlights Today for Very Different Reasons

Following a solid week of gains, the U.S. stocks are currently trading in a small range as investors are preparing themselves for the earnings season and are also keeping an eye on commodities. Shares of Boeing Co (NYSE:BA) are slowly ticking upwards, after the company announced the acquisition of a provider of training software. In the mean time, Southwest Airlines Co (NYSE:LUV) stock has escaped unscathed as the company finally managed to remove technical glitches that messed-up the check in process since yesterday morning. Let’s take a look at how the market reacted to the news and which stock smart money likes better.

Hedge funds have been underperforming the market for a very long time. However, this was mainly because of the huge fees that hedge funds charge as well as the poor performance of their short books. Hedge funds’ long positions performed actually better than the market. Small-cap stocks, activist targets, and spin offs were among the bright spots in hedge funds’ portfolios. For instance, the 15 most popular small-cap stocks among hedge funds outperformed the market by more than 53 percentage points since the end of August 2012 (read the details here). This strategy also managed to beat the market by double digits annually in our back tests covering the 1999-2012 period.

As part of its development strategy, Boeing Co (NYSE:BA) has acquired Peters Software GmbH, a German company that offers training solutions for early stage pilot training. There has not been a significant reaction so far, as the stock is trading in a tight range so far today. Peters Software offers training software and curriculum aligned with the requirements of the European Aviation Safety Agency, one of the worlds leading flight authorities. Boeing believes this move will help them enhance their own specialized training content amid growing demand for pilot services. According to research conducted by the aerospace giant, over the next 20 years some 558,000 new pilots will be required by airline companies to support the robust growth in the global fleet. Managing an extensive network of pilot, maintenance and cabin safety training facilities around the globe, Boeing has an average of 1,200 registered trainees every day.

“The high-quality software that Peters Software develops enhances Boeing’s customized pilot training content to meet specific needs of our customers. This acquisition allows Boeing Flight Services to offer training materials consistent with the standards set by the European Aviation Safety Agency, one of the world’s leading aviation regulatory authorities,” said Stan Deal, senior Vice President of Boeing.

Hedge funds have mixed sentiment towards the aerospace company, as the number of investors with long positions has decreased to 44, from the 50 at the end of the first quarter. The value of their combined investments rose by 20.2% to $1.6 billion during the quarter, however it still accounted for an insignificant 1.7% of the company’s outstanding stock. Phill Gross and Robert Atchinson of Adage Capital Management are big fans of Boeing Co (NYSE:BA), having boosted their stake to 2.45 million shares, according to Adage’s latest 13F filing. Doug Silverman and Alexander Klabin are also convinced there is upside potential, having initiated a position during the second quarter that amounts to 1.5 million shares. Billionaire Ken Griffin, on the other hand, saw fit to distance himself and has cut his position by 28% during the second quarter. His fund, Citadel Investment Group, has reported ownership of 707,007 shares of Boeing in its latest 13F. 

Southwest Airlines Co (NYSE:LUV)‘s technical problems started on Sunday morning, as a software glitch unsettled the check-in of passengers that did not have a printed copy of their ticket or a mobile boarding pass. As a result, the staff was forced to use backup systems to go around the problem, which led to hundreds of flights being delayed. Southwest had also warned passengers flying today to print their boarding passes at home and arrive at the airport earlier. Michelle Agnew, a Southwest Airlines spokeswoman, announced in an email earlier today that system failures were fixed and normal service was resumed. Shares have registered a tepid advance, up by 1.7% during the first two hours of trading after a fall in the pre-market trading.

Southwest Airlines Co (NYSE:LUV) has gained some popularity among the hedge funds we track, with 50 investors reporting positions in the company at the end of the second quarter, up from 44 at the end of March. Their combined investment accounted for 7.9% of the carrier’s outstanding stock and was valued at $1.74 billion at the end of June, down by 16% on the quarter. Cliff Asness believes Southwest Airlines has great upside potential, having boosted his holding by 73% throughout the second quarter, with AQR having reported ownership of 9.67 million shares at the end of June. Jim Simons‘ mathematical models seem to suggest the same, as Renaissance Technologies reportedly holds 4.65 million shares, up by 86% from the end of the first quarter.

Disclosure: none.