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Were Hedge Funds Right About Delta Air Lines, Inc. (DAL)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Delta Air Lines, Inc. (NYSE:DAL).

Delta Air Lines, Inc. (NYSE:DAL) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. DAL was in 70 hedge funds’ portfolios at the end of December. There were 71 hedge funds in our database with DAL holdings at the end of the previous quarter. Our calculations also showed that DAL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the new hedge fund action encompassing Delta Air Lines, Inc. (NYSE:DAL).

How are hedge funds trading Delta Air Lines, Inc. (NYSE:DAL)?

Heading into the first quarter of 2020, a total of 70 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -1% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DAL over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Delta Air Lines, Inc. (NYSE:DAL) was held by Berkshire Hathaway, which reported holding $4146.8 million worth of stock at the end of September. It was followed by Lansdowne Partners with a $646.3 million position. Other investors bullish on the company included AQR Capital Management, Two Sigma Advisors, and PAR Capital Management. In terms of the portfolio weights assigned to each position Lansdowne Partners allocated the biggest weight to Delta Air Lines, Inc. (NYSE:DAL), around 17.49% of its 13F portfolio. Cyrus Capital Partners is also relatively very bullish on the stock, earmarking 17.43 percent of its 13F equity portfolio to DAL.

Since Delta Air Lines, Inc. (NYSE:DAL) has faced falling interest from hedge fund managers, we can see that there exists a select few money managers that decided to sell off their entire stakes last quarter. At the top of the heap, Brandon Haley’s Holocene Advisors dropped the biggest investment of the 750 funds monitored by Insider Monkey, worth about $33 million in stock, and David Keidan’s Buckingham Capital Management was right behind this move, as the fund sold off about $16 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Delta Air Lines, Inc. (NYSE:DAL) but similarly valued. These stocks are Workday Inc (NASDAQ:WDAY), Prudential Financial Inc (NYSE:PRU), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), and Public Storage (NYSE:PSA). This group of stocks’ market caps are closest to DAL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WDAY 55 2251111 11
PRU 36 691519 6
BBVA 8 338963 -2
PSA 27 927343 2
Average 31.5 1052234 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1052 million. That figure was $7037 million in DAL’s case. Workday Inc (NASDAQ:WDAY) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Delta Air Lines, Inc. (NYSE:DAL) is more popular among hedge funds. 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 lost 1.0% in 2020 through April 20th and still beat the market by 11 percentage points. Unfortunately DAL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DAL were disappointed as the stock returned -59.3% during the three months of 2020 (through April 20th) 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.
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.

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