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Should You Avoid Mesa Air Group, Inc. (MESA)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 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 March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtMesa Air Group, Inc. (NASDAQ:MESA) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Mesa Air Group, Inc. (NASDAQ:MESA) investors should be aware of a decrease in hedge fund interest lately. Our calculations also showed that MESA isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. 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. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the key hedge fund action regarding Mesa Air Group, Inc. (NASDAQ:MESA).

How are hedge funds trading Mesa Air Group, Inc. (NASDAQ:MESA)?

Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MESA over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in Mesa Air Group, Inc. (NASDAQ:MESA) was held by Owl Creek Asset Management, which reported holding $8.1 million worth of stock at the end of September. It was followed by MSDC Management with a $7.7 million position. Other investors bullish on the company included Altimeter Capital Management, Royce & Associates, and Renaissance Technologies. In terms of the portfolio weights assigned to each position MSDC Management allocated the biggest weight to Mesa Air Group, Inc. (NASDAQ:MESA), around 2.09% of its 13F portfolio. Owl Creek Asset Management is also relatively very bullish on the stock, designating 0.64 percent of its 13F equity portfolio to MESA.

Judging by the fact that Mesa Air Group, Inc. (NASDAQ:MESA) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of fund managers who were dropping their entire stakes by the end of the first quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest stake of the 750 funds watched by Insider Monkey, worth close to $2.1 million in stock. Matthew Halbower’s fund, Pentwater Capital Management, also cut its stock, about $1.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 4 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Mesa Air Group, Inc. (NASDAQ:MESA) but similarly valued. These stocks are United Security Bancshares (NASDAQ:UBFO), Castlight Health Inc (NYSE:CSLT), Savara, Inc. (NASDAQ:SVRA), and ObsEva SA (NASDAQ:OBSV). 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
UBFO 3 1992 -2
CSLT 13 18972 -4
SVRA 11 20457 -3
OBSV 8 11506 0
Average 8.75 13232 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $25 million in MESA’s case. Castlight Health Inc (NYSE:CSLT) is the most popular stock in this table. On the other hand United Security Bancshares (NASDAQ:UBFO) is the least popular one with only 3 bullish hedge fund positions. Mesa Air Group, Inc. (NASDAQ:MESA) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately MESA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MESA were disappointed as the stock returned 4.6% 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.