Why Atlas Air Worldwide (AAWW) Stock is a Compelling Investment Case

Greenlight Capital Fund recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 1.0% for the quarter, underperforming its benchmark, the S&P 500 Index which returned 20.5% in the same quarter. You should check out Greenlight Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Greenlight Capital highlighted a few stocks and Atlas Air Worldwide Holdings Inc (NASDAQ:AAWW) is one of them. Atlas Air Worldwide Holdings Inc (NASDAQ:AAWW) is a cargo airline, passenger charter airline, and aircraft lessor based in New York. Year-to-date, Atlas Air Worldwide Holdings Inc (NASDAQ:AAWW) stock gained 109.7% and on August 4th it had a closing price of $55.72. Here is what Greenlight Capital said:

“We also added a new large equity position in Atlas Air Worldwide Holdings (AAWW) at an average price of $36.28. AAWW operates the world’s largest fleet of Boeing 747 freighters and is a sizable owner, operator and lessor of 767, 777 and 737 freighters.

Prior to COVID-19, approximately 50% of global airfreight was carried in the belly of passenger planes, mostly on long-haul international flights. With long-haul international passenger traffic down more than 90% year-over-year (and likely to be the last segment of passenger travel to recover), there is a historic shortage of airfreight capacity. After an initial surge in demand to ship Personal Protective Equipment (“PPE”), the market is transitioning back towards more traditional airfreight products such as electronics, capital goods, perishables and pharmaceuticals. Market shipping rates increased by over 100% year-overyear in the second quarter and are expected to remain strong. As a result, we expect AAWW to see significant growth in earnings per share in 2020 (from the $5.24 it earned in 2019).

In response to the capacity shortage, some passenger widebodies are temporarily operating as freighters (nicknamed “preighters”), particularly to fulfill urgent PPE demand. However, due to lower cargo capacity, more cumbersome loading and unloading and similar overall trip costs, preighters cost roughly 2.5x as much per ton shipped compared to dedicated freighters. Preighter activity departing from China and Hong Kong has already declined by more than 50% since May as shipping rates have partially normalized. Over the next three years, we don’t expect many large freighters to be either produced or converted from passenger service given the cost and lead-times involved.

While most of the increase in earnings will occur in AAWW’s charter segment, AAWW also has attractive and substantial long-term contractual relationships serving DHL and Amazon, which stand to benefit from the growth in e-commerce and relatively steady business supporting the U.S. military. We acquired our shares at 0.54x Q1 2020 tangible book value and approximately 7x 2019 earnings that were achieved during much more competitive conditions. AAWW ended the quarter at $43.03.”

15 Countries with the Strictest Customs, Border Control and Airport Security in the World

Alexey Y. Petrov/Shutterstock.com

In Q1 2020, the number of bullish hedge fund positions on Atlas Air Worldwide Holdings Inc (NASDAQ:AAWW)  stock increased by about 13% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Atlas Air’s growth potential. Our calculations showed that Atlas Air Worldwide Holdings Inc (NASDAQ:AAWW)  isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

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