Was The Smart Money Right About American Airlines Group Inc (AAL)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards American Airlines Group Inc (NASDAQ:AAL).

Is American Airlines Group Inc (NASDAQ:AAL) the right investment to pursue these days? Prominent investors were turning bullish. The number of bullish hedge fund positions moved up by 11 recently. American Airlines Group Inc (NASDAQ:AAL) was in 47 hedge funds’ portfolios at the end of June. The all time high for this statistics is 77. Our calculations also showed that AAL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 36 hedge funds in our database with AAL positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth 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 to get excerpts of these letters in your inbox. Now let’s go over the key hedge fund action surrounding American Airlines Group Inc (NASDAQ:AAL).

How have hedgies been trading American Airlines Group Inc (NASDAQ:AAL)?

At second quarter’s end, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in AAL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the number one position in American Airlines Group Inc (NASDAQ:AAL). Citadel Investment Group has a $129.7 million call position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $119 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism contain D. E. Shaw’s D E Shaw, Paul Reeder and Edward Shapiro’s PAR Capital Management and Panayotis Takis Sparaggis’s Alkeon Capital Management. In terms of the portfolio weights assigned to each position Key Square Capital Management allocated the biggest weight to American Airlines Group Inc (NASDAQ:AAL), around 1.57% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, dishing out 1.35 percent of its 13F equity portfolio to AAL.

As aggregate interest increased, specific money managers were breaking ground themselves. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, created the most outsized position in American Airlines Group Inc (NASDAQ:AAL). LMR Partners had $18.8 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $9.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Leon Shaulov’s Maplelane Capital, Joseph Samuels’s Islet Management, and Joe DiMenna’s ZWEIG DIMENNA PARTNERS.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as American Airlines Group Inc (NASDAQ:AAL) but similarly valued. We will take a look at RealPage, Inc. (NASDAQ:RP), Commerce Bancshares, Inc. (NASDAQ:CBSH), Dolby Laboratories, Inc. (NYSE:DLB), UGI Corp (NYSE:UGI), Diamondback Energy Inc (NASDAQ:FANG), Carlisle Companies, Inc. (NYSE:CSL), and The Boston Beer Company Inc (NYSE:SAM). All of these stocks’ market caps are similar to AAL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.7 hedge funds with bullish positions and the average amount invested in these stocks was $393 million. That figure was $437 million in AAL’s case. RealPage, Inc. (NASDAQ:RP) is the most popular stock in this table. On the other hand Commerce Bancshares, Inc. (NASDAQ:CBSH) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks American Airlines Group Inc (NASDAQ:AAL) is more popular among hedge funds. Our overall hedge fund sentiment score for AAL is 78.3. 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 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Unfortunately AAL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AAL were disappointed as the stock returned -3.6% since the end of the second quarter (through 10/23) 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 most of these stocks already outperformed the market in 2020.

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