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Alaska Air Group, Inc. (ALK): Hedge Funds Caught Wrong Footed

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Alaska Air Group, Inc. (NYSE:ALK).

Is Alaska Air Group, Inc. (NYSE:ALK) undervalued? The best stock pickers are getting more bullish. The number of bullish hedge fund positions rose by 4 recently. Our calculations also showed that ALK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the new hedge fund action regarding Alaska Air Group, Inc. (NYSE:ALK).

How have hedgies been trading Alaska Air Group, Inc. (NYSE:ALK)?

At Q4’s end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ALK over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, PAR Capital Management held the most valuable stake in Alaska Air Group, Inc. (NYSE:ALK), which was worth $183.6 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $139.6 million worth of shares. Renaissance Technologies, Point72 Asset Management, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to Alaska Air Group, Inc. (NYSE:ALK), around 3.92% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, setting aside 3.57 percent of its 13F equity portfolio to ALK.

As one would reasonably expect, specific money managers have been driving this bullishness. Laurion Capital Management, managed by Benjamin A. Smith, created the most outsized position in Alaska Air Group, Inc. (NYSE:ALK). Laurion Capital Management had $9.6 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $6 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Alaska Air Group, Inc. (NYSE:ALK) but similarly valued. These stocks are Brookfield Renewable Partners L.P. (NYSE:BEP), NovoCure Limited (NASDAQ:NVCR), News Corp (NASDAQ:NWSA), and Gerdau SA (NYSE:GGB). All of these stocks’ market caps match ALK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BEP 4 11244 0
NVCR 22 450885 -2
NWSA 26 511464 -7
GGB 7 165960 -2
Average 14.75 284888 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $627 million in ALK’s case. News Corp (NASDAQ:NWSA) is the most popular stock in this table. On the other hand Brookfield Renewable Partners L.P. (NYSE:BEP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Alaska Air Group, Inc. (NYSE:ALK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately ALK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALK were disappointed as the stock returned -51.7% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Disclosure: None. This article was originally published at Insider Monkey.

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