United Airlines Holdings, Inc. (UAL): Are Hedge Funds Right About This Stock?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about United Airlines Holdings, Inc. (NASDAQ:UAL) in this article.

Is United Airlines Holdings, Inc. (NASDAQ:UAL) a healthy stock for your portfolio? The smart money is becoming less hopeful. The number of bullish hedge fund positions were cut by 2 lately. Hedge fund sentiment towards the stock is in a secular decline since 2015. Our calculations also showed that UAL isn’t among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Brad Gerstner Altimeter Capital

Brad Gerstner of Altimeter Capital

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the new hedge fund action surrounding United Airlines Holdings, Inc. (NASDAQ:UAL).

What have hedge funds been doing with United Airlines Holdings, Inc. (NASDAQ:UAL)?

At the end of the second quarter, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in UAL over the last 16 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

No of Hedge Funds with UAL Positions

The largest stake in United Airlines Holdings, Inc. (NASDAQ:UAL) was held by Berkshire Hathaway, which reported holding $1920.7 million worth of stock at the end of March. It was followed by PAR Capital Management with a $1318.8 million position. Other investors bullish on the company included Altimeter Capital Management, Lansdowne Partners, and Diamond Hill Capital.

Because United Airlines Holdings, Inc. (NASDAQ:UAL) has faced a decline in interest from the smart money, it’s safe to say that there was a specific group of hedge funds who were dropping their positions entirely by the end of the second quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $93.5 million in stock. Brandon Haley’s fund, Holocene Advisors, also cut its stock, about $46.2 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as United Airlines Holdings, Inc. (NASDAQ:UAL) but similarly valued. These stocks are Archer-Daniels-Midland Company (NYSE:ADM), M&T Bank Corporation (NYSE:MTB), Zoom Video Communications, Inc. (NASDAQ:ZM), and FirstEnergy Corp. (NYSE:FE). This group of stocks’ market valuations are closest to UAL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADM 26 473693 1
MTB 31 1264574 -5
ZM 32 602810 32
FE 34 3498562 -7
Average 30.75 1459910 5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $1460 million. That figure was $6716 million in UAL’s case. FirstEnergy Corp. (NYSE:FE) is the most popular stock in this table. On the other hand Archer-Daniels-Midland Company (NYSE:ADM) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks United Airlines Holdings, Inc. (NASDAQ:UAL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately UAL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UAL were disappointed as the stock returned 1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks (see the video below) among hedge funds as many of these stocks already outperformed the market in Q3.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Disclosure: None. This article was originally published at Insider Monkey.