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Hedge Funds Never Been Less Bullish On Delta Air Lines, Inc. (DAL)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Delta Air Lines, Inc. (NYSE:DAL) and determine whether the smart money was really smart about this stock.

Is Delta Air Lines, Inc. (NYSE:DAL) a bargain? Investors who are in the know were reducing their bets on the stock. The number of long hedge fund positions decreased by 14 recently. Delta Air Lines, Inc. (NYSE:DAL) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistics is 109. Our calculations also showed that DAL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 53 hedge funds in our database with DAL holdings at the end of March.

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

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s take a glance at the latest hedge fund action encompassing Delta Air Lines, Inc. (NYSE:DAL).

Hedge fund activity in Delta Air Lines, Inc. (NYSE:DAL)

Heading into the third quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DAL over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Delta Air Lines, Inc. (NYSE:DAL) was held by Lansdowne Partners, which reported holding $242.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $149.4 million position. Other investors bullish on the company included PAR Capital Management, Two Sigma Advisors, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Covalent Capital Partners allocated the biggest weight to Delta Air Lines, Inc. (NYSE:DAL), around 11.48% of its 13F portfolio. Lansdowne Partners is also relatively very bullish on the stock, setting aside 10.13 percent of its 13F equity portfolio to DAL.

Because Delta Air Lines, Inc. (NYSE:DAL) has faced falling interest from hedge fund managers, we can see that there lies a certain “tier” of money managers that slashed their full holdings in the second quarter. At the top of the heap, Warren Buffett’s Berkshire Hathaway said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, valued at close to $2050.9 million in stock, and Richard Chilton’s Chilton Investment Company was right behind this move, as the fund sold off about $36.6 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 14 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Delta Air Lines, Inc. (NYSE:DAL) but similarly valued. We will take a look at Fortis Inc. (NYSE:FTS), PG&E Corporation (NYSE:PCG), Slack Technologies Inc (NYSE:WORK), Akamai Technologies, Inc. (NASDAQ:AKAM), Ameren Corporation (NYSE:AEE), Interactive Brokers Group, Inc. (NASDAQ:IBKR), and Coca-Cola European Partners plc (NYSE:CCEP). This group of stocks’ market caps are similar to DAL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTS 8 379313 -7
PCG 92 4871702 44
WORK 32 287493 1
AKAM 40 548791 0
AEE 19 474360 -2
IBKR 32 695740 10
CCEP 27 464657 5
Average 35.7 1103151 7.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.7 hedge funds with bullish positions and the average amount invested in these stocks was $1103 million. That figure was $865 million in DAL’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 8 bullish hedge fund positions. Delta Air Lines, Inc. (NYSE:DAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DAL is 20.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately DAL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DAL were disappointed as the stock returned 10% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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