Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in United Airlines Holdings Inc (NASDAQ:UAL)? The smart money sentiment can provide an answer to this question.
Is UAL a good stock to buy now? United Airlines Holdings Inc (NASDAQ:UAL) has seen an increase in support from the world’s most elite money managers recently. United Airlines Holdings Inc (NASDAQ:UAL) was in 40 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 73. Our calculations also showed that UAL 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. With all of this in mind we’re going to take a peek at the recent hedge fund action encompassing United Airlines Holdings Inc (NASDAQ:UAL).
Do Hedge Funds Think UAL Is A Good Stock To Buy Now?
At Q3’s end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UAL over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, PAR Capital Management held the most valuable stake in United Airlines Holdings Inc (NASDAQ:UAL), which was worth $265.4 million at the end of the third quarter. On the second spot was Altimeter Capital Management which amassed $166.9 million worth of shares. Citadel Investment Group, CQS Cayman LP, and Citadel Investment Group 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 PAR Capital Management allocated the biggest weight to United Airlines Holdings Inc (NASDAQ:UAL), around 10.06% of its 13F portfolio. CQS Cayman LP is also relatively very bullish on the stock, setting aside 6.84 percent of its 13F equity portfolio to UAL.
As one would reasonably expect, key hedge funds have been driving this bullishness. Aristeia Capital, managed by Robert Henry Lynch, assembled the most valuable position in United Airlines Holdings Inc (NASDAQ:UAL). Aristeia Capital had $28.4 million invested in the company at the end of the quarter. Jack Woodruff’s Candlestick Capital Management also initiated a $15.6 million position during the quarter. The other funds with brand new UAL positions are Parag Vora’s HG Vora Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Jos Shaver’s Electron Capital Partners.
Let’s check out hedge fund activity in other stocks similar to United Airlines Holdings Inc (NASDAQ:UAL). These stocks are Penn National Gaming, Inc (NASDAQ:PENN), Franklin Resources, Inc. (NYSE:BEN), ICON Public Limited Company (NASDAQ:ICLR), Entegris Inc (NASDAQ:ENTG), Annaly Capital Management, Inc. (NYSE:NLY), Raymond James Financial, Inc. (NYSE:RJF), and Teva Pharmaceutical Industries Limited (NYSE:TEVA). This group of stocks’ market values are closest to UAL’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 30.7 hedge funds with bullish positions and the average amount invested in these stocks was $712 million. That figure was $735 million in UAL’s case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand ICON Public Limited Company (NASDAQ:ICLR) is the least popular one with only 24 bullish hedge fund positions. United Airlines Holdings Inc (NASDAQ:UAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UAL is 61.5. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on UAL as the stock returned 34.4% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.