Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in American Airlines Group Inc (NASDAQ:AAL)? The smart money sentiment can provide an answer to this question.
Is AAL stock a buy? American Airlines Group Inc (NASDAQ:AAL) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 37 hedge funds’ portfolios at the end of the fourth quarter of 2020. Our calculations also showed that AAL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Amedisys Inc (NASDAQ:AMED), Vistra Corp. (NYSE:VST), and Lear Corporation (NYSE:LEA) to gather more data points.
In the financial world there are numerous indicators stock traders use to value publicly traded companies. Some of the most underrated indicators are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the elite investment managers can outpace the S&P 500 by a solid amount (see the details here).
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. Keeping this in mind let’s take a glance at the recent hedge fund action encompassing American Airlines Group Inc (NASDAQ:AAL).
Do Hedge Funds Think AAL Is A Good Stock To Buy Now?
At fourth quarter’s end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 41 hedge funds with a bullish position in AAL a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, PAR Capital Management was the largest shareholder of American Airlines Group Inc (NASDAQ:AAL), with a stake worth $75 million reported as of the end of December. Trailing PAR Capital Management was Citadel Investment Group, which amassed a stake valued at $56.9 million. Millennium Management, Hosking Partners, and Two Sigma Advisors 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 White Square Capital allocated the biggest weight to American Airlines Group Inc (NASDAQ:AAL), around 2.26% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, setting aside 2.19 percent of its 13F equity portfolio to AAL.
Seeing as American Airlines Group Inc (NASDAQ:AAL) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there is a sect of fund managers that elected to cut their positions entirely in the fourth quarter. Interestingly, Michael Hintze’s CQS Cayman LP sold off the biggest stake of all the hedgies tracked by Insider Monkey, totaling about $29.7 million in stock. Donald Sussman’s fund, Paloma Partners, also dumped its stock, about $10.3 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as American Airlines Group Inc (NASDAQ:AAL) but similarly valued. These stocks are Amedisys Inc (NASDAQ:AMED), Vistra Corp. (NYSE:VST), Lear Corporation (NYSE:LEA), Henry Schein, Inc. (NASDAQ:HSIC), GFL Environmental Inc. (NYSE:GFL), MGM Growth Properties LLC (NYSE:MGP), and Kingsoft Cloud Holdings Limited (NASDAQ:KC). This group of stocks’ market caps match AAL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMED | 20 | 305873 | -11 |
| VST | 39 | 1364892 | -6 |
| LEA | 36 | 1208598 | -8 |
| HSIC | 33 | 1225089 | -7 |
| GFL | 18 | 448705 | -2 |
| MGP | 29 | 524525 | -1 |
| KC | 20 | 189726 | -9 |
| Average | 27.9 | 752487 | -6.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $752 million. That figure was $329 million in AAL’s case. Vistra Corp. (NYSE:VST) is the most popular stock in this table. On the other hand GFL Environmental Inc. (NYSE:GFL) is the least popular one with only 18 bullish hedge fund positions. American Airlines Group Inc (NASDAQ:AAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AAL is 64.7. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and still beat the market by 0.4 percentage points. Hedge funds were also right about betting on AAL as the stock returned 51.3% since the end of Q4 (through 4/1) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
