Is Mesa Air (MESA) A Good Stock To Buy Now?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Mesa Air Group, Inc. (NASDAQ:MESA).

Is MESA a good stock to buy now? Money managers were reducing their bets on the stock. The number of long hedge fund positions went down by 1 recently. Mesa Air Group, Inc. (NASDAQ:MESA) was in 10 hedge funds’ portfolios at the end of September. The all time high for this statistics is 19. Our calculations also showed that MESA 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Altman Owl Creek

Jeffrey Altman of Owl Creek Asset 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we’re going to take a look at the recent hedge fund action surrounding Mesa Air Group, Inc. (NASDAQ:MESA).

Do Hedge Funds Think MESA Is A Good Stock To Buy Now?

At third quarter’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MESA over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MESA A Good Stock To Buy?

More specifically, MSDC Management was the largest shareholder of Mesa Air Group, Inc. (NASDAQ:MESA), with a stake worth $6.7 million reported as of the end of September. Trailing MSDC Management was Owl Creek Asset Management, which amassed a stake valued at $3.7 million. Royce & Associates, Arrowstreet Capital, and AQR Capital 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 MSDC Management allocated the biggest weight to Mesa Air Group, Inc. (NASDAQ:MESA), around 1.39% of its 13F portfolio. Owl Creek Asset Management is also relatively very bullish on the stock, earmarking 0.25 percent of its 13F equity portfolio to MESA.

Seeing as Mesa Air Group, Inc. (NASDAQ:MESA) has experienced declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their entire stakes in the third quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, totaling about $0.2 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also sold off its stock, about $0.1 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Mesa Air Group, Inc. (NASDAQ:MESA) but similarly valued. We will take a look at cbdMD, Inc. (NYSE:YCBD), RR Donnelley & Sons Company (NASDAQ:RRD), Qualigen Therapeutics, Inc. (NASDAQ:QLGN), Lizhi Inc. (NASDAQ:LIZI), The Goldfield Corporation (NYSE:GV), United Security Bancshares (NASDAQ:UBFO), and Capricor Therapeutics, Inc. (NASDAQ:CAPR). This group of stocks’ market caps are similar to MESA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YCBD 3 638 -1
RRD 8 16264 -5
QLGN 1 266 0
LIZI 2 133 1
GV 1 9051 0
UBFO 3 1563 0
CAPR 1 186 -3
Average 2.7 4014 -1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.7 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $17 million in MESA’s case. RR Donnelley & Sons Company (NASDAQ:RRD) is the most popular stock in this table. On the other hand Qualigen Therapeutics, Inc. (NASDAQ:QLGN) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Mesa Air Group, Inc. (NASDAQ:MESA) is more popular among hedge funds. Our overall hedge fund sentiment score for MESA is 69.8. 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 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on MESA as the stock returned 158.6% since the end of September (through 12/8) 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.