In this article, we discuss the 9 best airline stocks to buy according to hedge funds.
Hit faster and relatively harder than most other sectors, the aviation industry, and consequently, airline companies themselves, took massive blows last year, with shares plummeting due to the Covid-19 pandemic. According to a report by McKinsey, the airline industry’s revenue totaled $328 billion in 2020, an estimated revenue loss of over $370 billion versus the year 2019. While the industry is expected to make gradual recovery and growth, air traffic likely wont return to pre-pandemic levels until 2024.
Due to the introduction of vaccines and an ease in lockdowns, however, the economy is set to go again, with an increase in both domestic and international travel. The International Air Transport Association (IATA) expects losses amounting to $47.7 billion for the airline industry in 2021, an improvement over the estimated industry loss of approximately $126.4 billion in the year 2020. Additionally, cargo has remained a strong branch of business for the sector, outperforming the passenger business, with revenues expected to rise $152 billion, representing one-third of the airline industry’s revenue.
Despite the headwinds experienced by the global air travel and transport market, a path to improvement is foreseen. Owing to several growth opportunities present, investors looking to make a profit from the airline industry can take advantage of the airline stocks that remain on a strong upwards trajectory, including Delta Air Lines, Inc. (NYSE:DAL), Southwest Airlines Co. (NYSE:LUV), United Airline Holdings, Inc. (NASDAQ:UAL) and Alaska Air Group, Inc. (NYSE:ALK), among other discussed in more detail below.
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Our Methodology
Let us now analyze our list of the 9 best airline stocks to buy according to hedge funds.
These are the most popular airline stocks among the 873 elite hedge funds tracked by Insider Monkey.
Why should we pay attention to hedge fund sentiment while choosing stocks?
Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
9 Best Airline Stocks to Buy According to Hedge Funds
9. Mesa Air Group, Inc. (NASDAQ:MESA)
Number of Hedge Fund Holders: 18
Mesa Air Group, Inc. (NASDAQ:MESA) is a commercial aviation holding company for Mesa Airlines. Based in Arizona, the company provides scheduled passenger and cargo transportation through its fleet of over 146 aircraft. Ranked ninth on our list of the 9 best airline stocks to buy according to hedge funds, Mesa Air Group, Inc. has a market capitalization of $279.23 million.
Mesa Air Group, Inc. last issued its quarterly earnings report on September 9, with reported earnings per share at $0.11, beating market estimates by $0.01. The revenue for the quarter amounted to $125.16 million, an increase of 71.22% on a year-over-year basis.
At the end of the second quarter of 2021, 18 hedge funds in the database of Insider Monkey held stakes worth $48.7 million in Mesa Air Group, Inc.. This is compared to 20 hedge funds in the preceding quarter worth $69.6 million.
8. American Airlines Group Inc. (NASDAQ:AAL)
Number of Hedge Fund Holders: 25
American Airlines Group Inc. (NASDAQ:AAL) is a holding company that operates a net carrier, providing air transportation for passenger and cargo. Based in Texas, the airline company owns and operates a fleet of over 855 aircraft, and ranks eighth on our list of the 9 best airline stocks to buy according to hedge funds.
On August 11, Redburn analyst James Goodall began coverage of American Airlines Group Inc. with a Buy rating on its shares.
For the second quarter of 2021, American Airlines Group Inc. reported an EPS of -$1.69, crossing market estimates by $0.04. Additionally, the company declared revenues of $7.48 billion, beating consensus estimates by $16.02 million.
By the end of the second quarter of 2021, 25 hedge funds out of the 873 tracked by Insider Monkey held stakes in American Airlines Group Inc. worth roughly $620 million. This is compared to 32 hedge funds in the previous quarter with a total stake value of approximately $561.7 million.
Just like Delta Air Lines, Inc., Southwest Airlines Co., United Airline Holdings, Inc. and Alaska Air Group, Inc., American Airlines Group Inc. is a notable stock to invest in.
7. Spirit Airlines, Inc. (NYSE:SAVE)
Number of Hedge Fund Holders: 29
Spirit Airlines, Inc. (NYSE:SAVE) is a low-cost airline company operating as a carrier. Based in Florida, the company provides scheduled flights across the United States, Latin America and the Caribbean. The airline firm ranks seventh on the list of the 9 best airline stocks to buy according to hedge funds.
On July 28, the company posted earnings for the second quarter, reporting a revenue of more than $859 million, an increase of 520.31% on a year-over-year basis, crossing estimates by $41.38 million. The EPS for the quarter was reported to be -$0.34, surpassing estimates by $0.45.
By the end of the second quarter of 2021, 29 hedge funds out of the 873 tracked by Insider Monkey held stakes in Spirit Airline, Inc. worth roughly $247.7 million. This is compared to 24 hedge funds in the previous quarter with a total stake value of approximately $250.5 million.
On June 15, investment advisory Citi upgraded Spirit Airlines, Inc. stock to Buy from Neutral and raised the price target to $42 from $40, noting the company’s strong second quarter results.
Just like Delta Air Lines, Inc., Southwest Airlines Co., United Airline Holdings, Inc. and Alaska Air Group, Inc., Spirit Airlines, Inc. is a notable stock to invest in.
6. Allegiant Travel Company (NASDAQ:ALGT)
Number of Hedge Fund Holders: 29
Las Vegas-based airline carrier Allegiant Travel Company (NASDAQ:ALGT) ranks sixth on our list of the 9 best airline stocks to buy according to hedge funds. The company operates as a low-cost airline that engages in the provision of travel services catered to residents of underserved cities in the United States.
On July 29, BofA analyst Andrew Didora upgraded Allegiant Travel Company to Buy from Neutral with a $260 price target.
On July 28, the company posted earnings for the second quarter of 2021. Allegiant Travel Company reported earnings per share of $3.46, beating market predictions by $0.51. In addition, the revenue for the second quarter was over $472.4 million, an increase of 254.4% on a year-over-year basis, beating the estimates by $10.72 million.
By the end of the second quarter of 2021, 29 hedge funds out of the 873 tracked by Insider Monkey held stakes in Allegiant Travel Company worth roughly $390 million. This is compared to 22 hedge funds in the previous quarter with a total stake value of approximately $402 million.
In its Q2 2021 investor letter, Wasatch Global Investors stated that they liked Allegiant Travel Company from a risk/reward perspective. Here is what the fund said:
“Allegiant Travel Co. (ALGT) was also a large detractor. Allegiant offers airline flights, hotel bookings, car rentals, travel management and other related services. When the stock price declined in 2020, we performed more research on the company. Although other travel-related competitors were facing dire circumstances, Allegiant wasn’t forced to raise dilutive equity or take government money. Since then, Allegiant has strengthened its relationships with pilots and crews and has positioned itself to benefit from leisure travel—which should accelerate sooner than business travel. Although we didn’t purchase the company as a way to take advantage of the economic reopening, the stock did get a boost from economy-related optimism in the first quarter. During the second quarter, the stock simply gave back some of its gains but we still like the company’s fundamentals from a risk/reward perspective.”
5. JetBlue Airways Corporation (NASDAQ:JBLU)
Number of Hedge Fund Holders: 30
JetBlue Airways Corporation (NASDAQ:JBLUE) is a major American low cost airline company. Based in New York, the company provides air transportation services through its fleet of over 267 aircraft.
This July, investment advisory Susquehanna kept a Positive rating on JetBlue Airways Corporation (NASDAQ: JBLU) stock with a price target of $21, noting that the long-term outlook seemed positive, despite near-term pressure.
By the end of the second quarter of 2021, 30 hedge funds out of the 873 tracked by Insider Monkey held stakes in JetBlue Airways Corporation worth roughly $401.7 million, up from 22 hedge funds in the preceding quarter with a total stake value of approximately $425.6 million.
On July 27, the company posted earnings for the second quarter, with an EPS of -$0.65, beating estimates by $0.09. The revenue over the quarter was $1.5 billion, an increase of 587% on a year-on-year basis, surpassing estimates by $60 million.
Out of the hedge funds being tracked by Insider Monkey, Illinois-based Citadel Investment Group is a leading shareholder in JetBlue Airways Corporation, with over 3.4 million shares worth more than $57.2 million.
4. Alaska Air Group, Inc. (NYSE:ALK)
Number of Hedge Fund Holders: 38
Washington-based Alaska Air Group, Inc. is an airline holding company. The firm provides air services to passengers through its three segments: Alaska Mainline, Alaska Regional and Horizon Air. The airline company is ranked fourth on our list of the 9 best airline stocks to buy according to hedge funds.
In its earnings results for the second quarter of 2021, the firm reported earnings per share of -$0.30, beating market estimates by $0.14. The revenue for the quarter was reported to be $1.53 billion, an increase of 262.71% on a year-over-year basis, surpassing predictions by $9.22 million.
By the end of the second quarter of 2021, 38 hedge funds out of the 873 tracked by Insider Monkey held stakes in Alaska Air Group, Inc. worth roughly $505.8 million. This is compared to 32 hedge funds in the previous quarter with a total stake value of approximately $587.9 million.
On October 1, JPMorgan analyst Jamie Baker raised his price target on Alaska Air Group, Inc. to $97 from $94, and kept an Overweight rating on the shares.
In its Q1 2021 investor letter, White Brook Capital, an asset management firm, explains why it sold its shares of Alaska Air Group, Inc.. Here is what the fund said:
“Despite initiating a position in the fourth quarter, Alaska Airlines Group, Inc (ALK) was sold during the first quarter. The Alaska Airlines investment was envisioned to be a long-term investment, but the stock price appreciated more quickly than expected. Like many other “re-open trades”, the value of the company including its debt now exceeds the value pre-pandemic. For that to be reasonable I’d have to believe:
1) The company/industry had too little debt and by adding debt they’ve better optimized their balance sheet for equity returns while still maintaining downside resiliency;
2) The company/industry’s profitability will be better moving forward than it was pre-pandemic and therefore warrant a higher multiple; and/or
3) The company/industry was significantly mispriced before the pandemic.
The first was true of Alaska Airlines pre-pandemic, but the certainty one can have about the second and third is not high enough to compel continued investment at today’s prices. The intended long-term position turned into a short-term trade with an exceptional IRR.”
3. United Airlines Holdings, Inc. (NASDAQ:UAL)
Number of Hedge Fund Holders: 39
United Airlines Holdings, Inc is an airline holding company based in Illinois. The company provides provides transportation services for passengers and cargo, as well as satellite-based Wi-Fi through its overseas routes. Ranked third on our list of the 9 best airline stocks to buy according to hedge funds, United Airlines Holdings, Inc. has a market capitalization of $16.23 billion.
On the first week of October, the airline company rallied more than 3.5%, most likely due to Merck & Co., Inc’s antiviral pill, Molnupiravir, a cheap antiviral option, which could potentially lead to a faster end to the pandemic. For the second quarter of 2021, the airline company declared revenues of $5.47 billion, an increase of over 270.92% on a year-over-year basis, crossing forecast estimates by $116.02 million.
Earlier this July, MKM Partners analyst Conor Cunningham kept a Neutral rating on United Airlines Holdings, Inc. alongside a price target of $61.
By the end of the second quarter of 2021, 39 hedge funds out of the 873 tracked by Insider Monkey held stakes in United Airlines Holdings, Inc. worth roughly $704 million. This is compared to 38 hedge funds in the previous quarter with a total stake value of approximately $1.02 billion.
2. Southwest Airlines Co. (NYSE:LUV)
Number of Hedge Fund Holders: 49
Southwest Airlines Co. is a major American airline company, and is the world’s largest low-cost air carrier. The company provides passenger airline services through its fleet of over 718 aircraft that travel to 121 destinations in the world. The airline firm ranks second on our list of the 9 best airline stocks to buy according to hedge funds.
On October 4, Barclays analyst Brandon Oglenski upgraded Southwest Airlines Co. to Overweight from Equal Weight, with a price target of $75, up from $64.
The company last released its quarterly earnings report on July 22, with earnings per share at -$0.35, falling short of the market estimates by $0.12. On the other hand, the company reported revenues at $4.01 billion, an increase of over 297.62% on a year-over-year basis, surpassing market predictions by $69.46 million.
By the end of the second quarter of 2021, 49 hedge funds out of the 873 tracked by Insider Monkey held stakes in Southwest Airlines Co. worth roughly $926 million. This is compared to 52 hedge funds in the previous quarter with a total stake value of approximately $747 million.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Southwest Airlines Co. was one of them. Here is what the fund said:
“One of our goals as we constantly monitor the portfolio is to see if we can better deploy capital by lowering the probability of being wrong. This motivation drove our swap of Delta Airlines into Southwest Airlines during the quarter. We expect a huge rebound in airline traffic as COVID-19 concerns abate, but we are much more comfortable that it will be led by leisure travel. Conversely, we are more uncertain of the ultimate level and timing of business travel demand. Southwest, with its simple fare strategy and high leisure travel exposure, is better positioned to capture the ongoing traffic rebound without having to answer the business travel demand question on which Delta is more dependent. As a result, we expect Southwest to play serious offense as it gains share in the rebounding travel market and can fully leverage the massive pent-up demand for travel that we expect. In addition, the U.S. lead in vaccination over Europe favors Southwest over Delta, given the domestic focus of Southwest. COVID-19 has changed many things, but humans by their very nature like to move, and many of them will do it on Southwest.”
1. Delta Air lines, Inc. (NYSE:DAL)
Number of Hedge Fund Holders: 49
Delta Air Lines, Inc. is a major airlines firm based in Georgia. Owning and operating a fleet of over 1,110 aircraft, the company provides air travel services to over 300 destination in 60 countries. Delta Air Lines, Inc. has a market capitalization of $28.48 billion, and is ranked first on our list of the 9 best airline stocks to buy according to hedge funds.
On July 14, Delta Air Lines, Inc. released its quarterly earnings report, with declared EPS of -$1.07, crossing market estimates by $0.32. The revenue for the quarter was reported at $7.13 billion, an increase of 385.42% on a year-over-year basis, surpassing the forecast revenue by $858.07 million.
On August 11, Redburn analyst James Goodall initiated coverage of Delta Air Lines, Inc. with a Neutral rating on the company shares.
By the end of the second quarter of 2021, 49 hedge funds out of the 873 tracked by Insider Monkey held stakes in Delta Air Lines, Inc. worth $1.2 billion. This is compared to 50 hedge funds in the preceding quarter with a total stake value of approximately $1.09 billion.
Out of the hedge funds being tracked by Insider Monkey, London-based Lansdowne Partners is among the leading shareholders of Delta Air Lines, Inc., with over 4.58 million shares worth more than $198.5 million.
See also 10 Best Biotech Stocks To Invest In and 10 Best Dividend Stocks Under $20.
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This article is originally published at Insider Monkey.
