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. Keeping this in mind, let’s analyze whether Allegiant Travel Company (NASDAQ:ALGT) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is Allegiant Travel Company (NASDAQ:ALGT) the right pick for your portfolio? Money managers are taking a bullish view. The number of bullish hedge fund positions rose by 6 lately. Our calculations also showed that ALGT 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). ALGT was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 18 hedge funds in our database with ALGT holdings at the end of the previous quarter.
In the eyes of most shareholders, hedge funds are seen as worthless, outdated investment vehicles of years past. While there are more than 8000 funds with their doors open at the moment, Our experts hone in on the top tier of this group, approximately 850 funds. These investment experts handle the majority of the hedge fund industry’s total asset base, and by following their highest performing picks, Insider Monkey has brought to light a few investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Ric Dillon of Diamond Hill Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind let’s take a gander at the key hedge fund action regarding Allegiant Travel Company (NASDAQ:ALGT).
How have hedgies been trading Allegiant Travel Company (NASDAQ:ALGT)?
At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in ALGT over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, PAR Capital Management held the most valuable stake in Allegiant Travel Company (NASDAQ:ALGT), which was worth $282.5 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $87.5 million worth of shares. Citadel Investment Group, First Pacific Advisors LLC, and PEAK6 Capital Management 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 Mountain Lake Investment Management allocated the biggest weight to Allegiant Travel Company (NASDAQ:ALGT), around 11.9% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, designating 5.5 percent of its 13F equity portfolio to ALGT.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, established the largest position in Allegiant Travel Company (NASDAQ:ALGT). Balyasny Asset Management had $10.9 million invested in the company at the end of the quarter. Principal Global Investors’s Columbus Circle Investors also made a $10.9 million investment in the stock during the quarter. The other funds with new positions in the stock are David Harding’s Winton Capital Management, Mark Coe’s Intrinsic Edge Capital, and Michael Gelband’s ExodusPoint Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Allegiant Travel Company (NASDAQ:ALGT) but similarly valued. These stocks are International Bancshares Corp (NASDAQ:IBOC), Red Rock Resorts, Inc. (NASDAQ:RRR), Acceleron Pharma Inc (NASDAQ:XLRN), and Apollo Commercial Real Est. Finance Inc (NYSE:ARI). This group of stocks’ market values are similar to ALGT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IBOC | 20 | 195845 | 3 |
| RRR | 18 | 363869 | 1 |
| XLRN | 27 | 392663 | 1 |
| ARI | 16 | 81491 | 6 |
| Average | 20.25 | 258467 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $618 million in ALGT’s case. Acceleron Pharma Inc (NASDAQ:XLRN) is the most popular stock in this table. On the other hand Apollo Commercial Real Est. Finance Inc (NYSE:ARI) is the least popular one with only 16 bullish hedge fund positions. Allegiant Travel Company (NASDAQ:ALGT) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately ALGT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALGT were disappointed as the stock returned -46.5% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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.
