Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Delta Air Lines, Inc. (NYSE:DAL) to find out whether there were any major changes in hedge funds’ views.
Is DAL a good stock to buy now? Delta Air Lines, Inc. (NYSE:DAL) investors should be aware of an increase in hedge fund sentiment recently. Delta Air Lines, Inc. (NYSE:DAL) was in 43 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 109. There were 39 hedge funds in our database with DAL positions at the end of the second quarter. Our calculations also showed that DAL isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 66 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a glance at the fresh hedge fund action regarding Delta Air Lines, Inc. (NYSE:DAL).
Do Hedge Funds Think DAL Is A Good Stock To Buy Now?
At third quarter’s end, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DAL over the last 21 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Delta Air Lines, Inc. (NYSE:DAL), with a stake worth $176.2 million reported as of the end of September. Trailing Citadel Investment Group was Lansdowne Partners, which amassed a stake valued at $129.2 million. PAR Capital Management, D E Shaw, and Aristeia Capital 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 Covalent Capital Partners allocated the biggest weight to Delta Air Lines, Inc. (NYSE:DAL), around 8.09% of its 13F portfolio. Lansdowne Partners is also relatively very bullish on the stock, dishing out 5.19 percent of its 13F equity portfolio to DAL.
As aggregate interest increased, specific money managers were breaking ground themselves. Aristeia Capital, managed by Robert Henry Lynch, initiated the most valuable position in Delta Air Lines, Inc. (NYSE:DAL). Aristeia Capital had $65.3 million invested in the company at the end of the quarter. Matt Sirovich and Jeremy Mindich’s Scopia Capital also made a $23 million investment in the stock during the quarter. The other funds with brand new DAL positions are Brandon Haley’s Holocene Advisors, Josh Donfeld and David Rogers’s Castle Hook Partners, and Benjamin A. Smith’s Laurion Capital Management.
Let’s check out hedge fund activity in other stocks similar to Delta Air Lines, Inc. (NYSE:DAL). We will take a look at Occidental Petroleum Corporation (NYSE:OXY), Agnico Eagle Mines Limited (NYSE:AEM), Edison International (NYSE:EIX), KKR & Co Inc. (NYSE:KKR), W.W. Grainger, Inc. (NYSE:GWW), Equity Residential (NYSE:EQR), and Marathon Petroleum Corp (NYSE:MPC). This group of stocks’ market valuations are similar to DAL’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.1 hedge funds with bullish positions and the average amount invested in these stocks was $1230 million. That figure was $753 million in DAL’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Equity Residential (NYSE:EQR) is the least popular one with only 27 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 48.4. 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. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on DAL as the stock returned 38.7% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.