The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Southwest Airlines Co. (NYSE:LUV).
Is LUV a good stock to buy now? Southwest Airlines Co. (NYSE:LUV) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. Southwest Airlines Co. (NYSE:LUV) was in 51 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 58. Our calculations also showed that LUV 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.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Now let’s go over the new hedge fund action encompassing Southwest Airlines Co. (NYSE:LUV).
Hedge fund activity in Southwest Airlines Co. (NYSE:LUV)
Heading into the fourth quarter of 2020, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the second quarter of 2020. By comparison, 40 hedge funds held shares or bullish call options in LUV a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, PAR Capital Management was the largest shareholder of Southwest Airlines Co. (NYSE:LUV), with a stake worth $96.1 million reported as of the end of September. Trailing PAR Capital Management was Adage Capital Management, which amassed a stake valued at $77.4 million. Orbis Investment Management, Two Sigma Advisors, 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 Sandbar Asset Management allocated the biggest weight to Southwest Airlines Co. (NYSE:LUV), around 4.9% of its 13F portfolio. Odey Asset Management Group is also relatively very bullish on the stock, setting aside 4.88 percent of its 13F equity portfolio to LUV.
Judging by the fact that Southwest Airlines Co. (NYSE:LUV) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that elected to cut their full holdings heading into Q4. It’s worth mentioning that Robert Henry Lynch’s Aristeia Capital cut the largest position of all the hedgies tracked by Insider Monkey, totaling close to $73.6 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund dropped about $31.8 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 5 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Southwest Airlines Co. (NYSE:LUV) but similarly valued. We will take a look at Cerner Corporation (NASDAQ:CERN), Wheaton Precious Metals Corp. (NYSE:WPM), Chewy, Inc. (NYSE:CHWY), Nokia Corporation (NYSE:NOK), GoodRx Holdings, Inc. (NASDAQ:GDRX), Barclays PLC (NYSE:BCS), and Dollar Tree, Inc. (NASDAQ:DLTR). All of these stocks’ market caps are similar to LUV’s market cap.
|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 32.4 hedge funds with bullish positions and the average amount invested in these stocks was $718 million. That figure was $745 million in LUV’s case. Dollar Tree, Inc. (NASDAQ:DLTR) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Southwest Airlines Co. (NYSE:LUV) is more popular among hedge funds. Our overall hedge fund sentiment score for LUV is 76.4. 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 returned 31.6% in 2020 through December 2nd but still managed to beat the market by 16 percentage points. Hedge funds were also right about betting on LUV as the stock returned 26.5% since the end of September (through 12/2) 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.