Did Hedge Funds Make The Right Call On Alaska Air Group, Inc. (ALK)?

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 Alaska Air Group, Inc. (NYSE:ALK) based on that data and determine whether they were really smart about the stock.

Is Alaska Air Group, Inc. (NYSE:ALK) a bargain? Hedge funds were taking a bearish view. The number of long hedge fund positions went down by 12 in recent months. Our calculations also showed that ALK 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). ALK was in 27 hedge funds’ portfolios at the end of the first quarter of 2020. There were 39 hedge funds in our database with ALK holdings at the end of the previous quarter.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Fred DiSanto of Ancora Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to analyze the new hedge fund action regarding Alaska Air Group, Inc. (NYSE:ALK).

What does smart money think about Alaska Air Group, Inc. (NYSE:ALK)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in ALK a year ago. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Among these funds, PAR Capital Management held the most valuable stake in Alaska Air Group, Inc. (NYSE:ALK), which was worth $54.5 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $51.2 million worth of shares. AQR Capital Management, Citadel Investment Group, and Arrowstreet Capital 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 Alaska Air Group, Inc. (NYSE:ALK), around 2.32% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, setting aside 1.54 percent of its 13F equity portfolio to ALK.

Because Alaska Air Group, Inc. (NYSE:ALK) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of money managers that elected to cut their full holdings heading into Q4. Interestingly, Joe Milano’s Greenhouse Funds dropped the largest stake of all the hedgies watched by Insider Monkey, comprising an estimated $21.4 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also sold off its stock, about $16.3 million worth. These moves are interesting, as total hedge fund interest fell by 12 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Alaska Air Group, Inc. (NYSE:ALK). We will take a look at Terreno Realty Corporation (NYSE:TRNO), BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ), Zai Lab Limited (NASDAQ:ZLAB), and Cullen/Frost Bankers, Inc. (NYSE:CFR). This group of stocks’ market valuations resemble ALK’s market valuation.

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As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $263 million in ALK’s case. BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Alaska Air Group, Inc. (NYSE:ALK) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ALK as the stock returned 27.4% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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