Is ALK A Good Stock To Buy According To Hedge Funds?

We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of Alaska Air Group, Inc. (NYSE:ALK) based on that data.

Is ALK a good stock to buy? Alaska Air Group, Inc. (NYSE:ALK) was in 34 hedge funds’ portfolios at the end of September. The all time high for this statistic is 42. ALK investors should be aware of an increase in hedge fund interest of late. There were 29 hedge funds in our database with ALK holdings at the end of June. Our calculations also showed that ALK isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Donald Sussman of Paloma Partners

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 15 best blue chip stocks to buy 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. Keeping this in mind let’s check out the latest hedge fund action regarding Alaska Air Group, Inc. (NYSE:ALK).

Do Hedge Funds Think ALK Is A Good Stock To Buy Now?

At third quarter’s end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ALK over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the biggest position in Alaska Air Group, Inc. (NYSE:ALK). Diamond Hill Capital has a $78.1 million position in the stock, comprising 0.4% of its 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $77.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other members of the smart money that hold long positions consist of Paul Reeder and Edward Shapiro’s PAR Capital Management, Dmitry Balyasny’s Balyasny Asset Management and Ken Griffin’s Citadel Investment Group. 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 2.86% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, earmarking 1.73 percent of its 13F equity portfolio to ALK.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Castle Hook Partners, managed by Josh Donfeld and David Rogers, created the most valuable position in Alaska Air Group, Inc. (NYSE:ALK). Castle Hook Partners had $11.4 million invested in the company at the end of the quarter. Robert Bishop’s Impala Asset Management also made a $9.8 million investment in the stock during the quarter. The other funds with brand new ALK positions are Chuck Royce’s Royce & Associates, William Harnisch’s Peconic Partners LLC, and Scott Bessent’s Key Square Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Alaska Air Group, Inc. (NYSE:ALK). We will take a look at Grupo Aeroportuario del Pacifico (NYSE:PAC), Appian Corporation (NASDAQ:APPN), Freshpet Inc (NASDAQ:FRPT), MDU Resources Group Inc (NYSE:MDU), SmileDirectClub, Inc. (NASDAQ:SDC), United Therapeutics Corporation (NASDAQ:UTHR), and Continental Resources, Inc. (NYSE:CLR). All of these stocks’ market caps are similar to ALK’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $336 million. That figure was $386 million in ALK’s case. United Therapeutics Corporation (NASDAQ:UTHR) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico (NYSE:PAC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Alaska Air Group, Inc. (NYSE:ALK) is more popular among hedge funds. Our overall hedge fund sentiment score for ALK is 84.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on ALK as the stock returned 37.5% since the end of September (through 12/18) 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.