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Were Hedge Funds Right About SkyWest, Inc. (SKYW)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of SkyWest, Inc. (NASDAQ:SKYW) based on that data and determine whether they were really smart about the stock.

SkyWest, Inc. (NASDAQ:SKYW) was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. SKYW investors should pay attention to an increase in support from the world’s most elite money managers in recent months. There were 15 hedge funds in our database with SKYW holdings at the end of the previous quarter. Our calculations also showed that SKYW 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.

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 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 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.

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. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a glance at the recent hedge fund action surrounding SkyWest, Inc. (NASDAQ:SKYW).

What have hedge funds been doing with SkyWest, Inc. (NASDAQ:SKYW)?

Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SKYW over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in SkyWest, Inc. (NASDAQ:SKYW), which was worth $36.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $11.2 million worth of shares. Citadel Investment Group, PAR Capital Management, and D E Shaw 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 SkyWest, Inc. (NASDAQ:SKYW), around 0.34% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.33 percent of its 13F equity portfolio to SKYW.

As one would reasonably expect, specific money managers were leading the bulls’ herd. D E Shaw, managed by D. E. Shaw, established the most valuable position in SkyWest, Inc. (NASDAQ:SKYW). D E Shaw had $4.2 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $2.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Jeffrey Altman’s Owl Creek Asset Management, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC, and Benjamin A. Smith’s Laurion Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SkyWest, Inc. (NASDAQ:SKYW) but similarly valued. We will take a look at Herman Miller, Inc. (NASDAQ:MLHR), Evoqua Water Technologies Corp. (NYSE:AQUA), TowneBank (NASDAQ:TOWN), and Four Corners Property Trust, Inc. (NYSE:FCPT). This group of stocks’ market values are closest to SKYW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MLHR 22 111991 -2
AQUA 28 124642 7
TOWN 4 25151 -2
FCPT 14 53932 -1
Average 17 78929 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $79 million. That figure was $84 million in SKYW’s case. Evoqua Water Technologies Corp. (NYSE:AQUA) is the most popular stock in this table. On the other hand TowneBank (NASDAQ:TOWN) is the least popular one with only 4 bullish hedge fund positions. SkyWest, Inc. (NASDAQ:SKYW) 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately SKYW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SKYW were disappointed as the stock returned 8.7% 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.