Did Hedge Funds Make The Right Call On Spirit Airlines Incorporated (SAVE) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Spirit Airlines Incorporated (NASDAQ:SAVE) and determine whether hedge funds had an edge regarding this stock.

Spirit Airlines Incorporated (NASDAQ:SAVE) was in 28 hedge funds’ portfolios at the end of the first quarter of 2020. SAVE investors should pay attention to a decrease in enthusiasm from smart money of late. There were 37 hedge funds in our database with SAVE positions at the end of the previous quarter. Our calculations also showed that SAVE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are a multitude of indicators market participants can use to evaluate stocks. Some of the most innovative indicators are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the elite hedge fund managers can trounce the S&P 500 by a healthy margin (see the details here).

Brad Gerstner Altimeter Capital

Brad Gerstner of Altimeter Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the recent hedge fund action surrounding Spirit Airlines Incorporated (NASDAQ:SAVE).

How are hedge funds trading Spirit Airlines Incorporated (NASDAQ:SAVE)?

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SAVE over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SAVE A Good Stock To Buy?

Among these funds, PAR Capital Management held the most valuable stake in Spirit Airlines Incorporated (NASDAQ:SAVE), which was worth $21.1 million at the end of the third quarter. On the second spot was Ancient Art (Teton Capital) which amassed $11.9 million worth of shares. Point72 Asset Management, Sonic Capital, and NWI 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 Sonic Capital allocated the biggest weight to Spirit Airlines Incorporated (NASDAQ:SAVE), around 6.7% of its 13F portfolio. Mountain Lake Investment Management is also relatively very bullish on the stock, dishing out 4.07 percent of its 13F equity portfolio to SAVE.

Judging by the fact that Spirit Airlines Incorporated (NASDAQ:SAVE) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of fund managers who sold off their entire stakes last quarter. Interestingly, D. E. Shaw’s D E Shaw dropped the largest position of all the hedgies followed by Insider Monkey, comprising about $10.8 million in stock. Brad Gerstner’s fund, Altimeter Capital Management, also dropped its stock, about $9.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 9 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Spirit Airlines Incorporated (NASDAQ:SAVE) but similarly valued. These stocks are Black Diamond Therapeutics, Inc. (NASDAQ:BDTX), U.S. Physical Therapy, Inc. (NYSE:USPH), Hertz Global Holdings, Inc. (NYSE:HTZ), and Suburban Propane Partners LP (NYSE:SPH). This group of stocks’ market caps are closest to SAVE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BDTX 13 162606 13
USPH 12 33325 -4
HTZ 24 515179 -9
SPH 4 40581 -1
Average 13.25 187923 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $188 million. That figure was $86 million in SAVE’s case. Hertz Global Holdings, Inc. (NYSE:HTZ) is the most popular stock in this table. On the other hand Suburban Propane Partners LP (NYSE:SPH) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Spirit Airlines Incorporated (NASDAQ:SAVE) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on SAVE as the stock returned 38.1% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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