Were These Hedge Funds Right About Selling United Airlines Holdings Inc (UAL)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding United Airlines Holdings Inc (NASDAQ:UAL).

United Airlines Holdings Inc (NASDAQ:UAL) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 73. UAL has seen a decrease in enthusiasm from smart money lately. There were 41 hedge funds in our database with UAL holdings at the end of March. Our calculations also showed that UAL 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).

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

In the 21st century investor’s toolkit there are several tools investors have at their disposal to grade their holdings. Two of the most useful tools are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can beat the S&P 500 by a solid amount (see the details here).

Brad Gerstner Altimeter Capital

Brad Gerstner of Altimeter Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to take a peek at the key hedge fund action surrounding United Airlines Holdings Inc (NASDAQ:UAL).

How have hedgies been trading United Airlines Holdings Inc (NASDAQ:UAL)?

At the end of June, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UAL over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

More specifically, PAR Capital Management was the largest shareholder of United Airlines Holdings Inc (NASDAQ:UAL), with a stake worth $261.7 million reported as of the end of June. Trailing PAR Capital Management was Altimeter Capital Management, which amassed a stake valued at $166.2 million. D E Shaw, Citadel Investment Group, and Citadel Investment Group 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 United Airlines Holdings Inc (NASDAQ:UAL), around 10.04% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, designating 3.91 percent of its 13F equity portfolio to UAL.

Judging by the fact that United Airlines Holdings Inc (NASDAQ:UAL) has experienced falling interest from hedge fund managers, it’s easy to see that there is a sect of hedge funds that slashed their entire stakes heading into Q3. At the top of the heap, Warren Buffett’s Berkshire Hathaway dumped the largest stake of all the hedgies tracked by Insider Monkey, comprising about $699.1 million in stock. Cliff Asness’s fund, AQR Capital Management, also said goodbye to its stock, about $115.9 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 3 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to United Airlines Holdings Inc (NASDAQ:UAL). These stocks are Erie Indemnity Company (NASDAQ:ERIE), Medical Properties Trust, Inc. (NYSE:MPW), Advance Auto Parts, Inc. (NYSE:AAP), NetApp Inc. (NASDAQ:NTAP), Darden Restaurants, Inc. (NYSE:DRI), HubSpot Inc (NYSE:HUBS), and Avantor, Inc. (NYSE:AVTR). This group of stocks’ market values resemble UAL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ERIE 14 42805 -3
MPW 17 162185 1
AAP 47 1507053 9
NTAP 25 465896 -1
DRI 49 1202504 -3
HUBS 41 867564 14
AVTR 34 646574 5
Average 32.4 699226 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.4 hedge funds with bullish positions and the average amount invested in these stocks was $699 million. That figure was $917 million in UAL’s case. Darden Restaurants, Inc. (NYSE:DRI) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 14 bullish hedge fund positions. United Airlines Holdings Inc (NASDAQ:UAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UAL is 51.9. 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. 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 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately UAL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on UAL were disappointed as the stock returned -2.2% since the end of June (through 10/30) 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.

Follow United Airlines Holdings Inc. (NYSE:UAL)

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