American Airlines Group Inc (NASDAQ:AAL)‘s stock has dropped more than 20% of its value year-to-date (YTD), but that does not seem to be a concern for Barron’s Jack Hough. Hough wrote in an article Saturday that the major US airlines stock could soar up to 50% over the next year and that the current trend of selling airline stocks after a strong 2014 for the industry, was overdone. He cited lower fuel costs and higher fares as primary reasons behind the potential rally. He pointed out that the fuel prices have plunged 40% since June 2014, which is the major operating cost for airlines. He added that Wall Street’s expectations are for the four major airliners to grow combined earnings by 40% to $29.2 billion in 2015. Based on these increasing earnings and reduced operating cost via lower fuel, he expects all four major airline stocks in the U.S to grow by 15% – 50% over the next year. What do hedge funds feel about this stock? Following Hough’s Bullish call, can American Airlines Group Inc (NASDAQ:AAL) be bought at the moment?
An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a fund with the knowledge and resources of Visium can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 83 percentage points and returning over 142%, while hedge funds themselves have collectively underperformed the market (read the details here).
We track hedge fund activity on stocks primarily to gauge the stock and get perspective on what many of the most experienced hedge fund managers in the world think about the stock. For American Airlines Group Inc (NASDAQ:AAL), there was a significant drop in hedge funds’ positions in the stock. The number of hedge funds with positions in the stock was 123 at the end of the fourth quarter, which was slashed to just 91 by the end of the first quarter. Many hedge funds had decided to bid goodbye to this stock in the first quarter. This stat shows a strongly negative hedge fund sentiment for American Airlines Group Inc (NASDAQ:AAL)’s stock after its strong performance in 2014, during which it gained over 100%.
Let’s first take a look at the insider sentiment for the stock. There were no insider purchase of the stock during the first quarter, but there were a few insider sales filed in the first and second quarter. Ray Robinson, Director at American Airlines Group, sold around 6,500 shares in the first quarter. Scott Kirby, President at American Airlines Group sold around 260,000 shares towards the end of April. In addition to these, American Airlines Group COO, Robert Isom and EVP, Corporate Affairs, Stephen Johnson sold around 90,000 shares each in May. This shows a negative insider sentiment for the stock.
Lets take a closer look at the recent hedge fund activity on the stock to reiterate the points discussed above.
Hedge fund activity in American Airlines Group Inc (NASDAQ:AAL)
At the end of the first quarter, a total of 91 of the hedge funds tracked by Insider Monkey were long in this stock, a change of -26% from the end of the fourth quarter. This stat shows that many hedge fund managers opted to move out of this stock in the first quarter and a few hedge fund managers might have sold part of their stake in the stock.
According to Insider Monkey’s database, the largest position in American Airlines Group Inc (NASDAQ:AAL) was held by James Dinan‘s York Capital Management with 11.4 million shares valued at $602.2 million at the end of the first quarter. The second largest position in the stock was held by Highland Capital Management, managed by James Dondero, owning close to 6 million shares valued at $315.8 million. In addition, Paul Reeder and Edward Shapiro’s PAR Capital Management, Stephen Freidheim’s Cyprus Capital Partners, and Tom Wagner and Ara Cohen’s Knighthead Capital were among the other hedge funds with stakes in the stock.
As one might expect many hedge funds had opted to sell out of their stake in the stock entirely during the first quarter. Leading the way wa David Tepper‘s Appaloosa Management, which sold around 4.4 million shares, valued at $233.5 million. Following David Tepper was Dan Loeb‘s Third Point, which sold around 3.75 million shares, valued at $201.1 million. Other hedge fund managers who sold their stakes in the stock were Zach Schreiber’s Point State Capital, and Rob Citrone’s Discovery Capital Management.
Considering the fact that hedge fund managers like David Tepper and Dan Loeb opted to walk away from American Airlines Group Inc (NASDAQ:AAL)’s stock, and that hedge fund sentiment was strongly negative on the stock, which has had a poor 2015, we don’t recommend a buy on this stock, despite the bullish call from Barron’s Jack Hough.
Disclosure: None
