Is SKYW A Good Stock To Buy Now?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about SkyWest, Inc. (NASDAQ:SKYW).

Is SKYW a good stock to buy now? SkyWest, Inc. (NASDAQ:SKYW) was in 19 hedge funds’ portfolios at the end of September. The all time high for this statistic is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. SKYW has seen an increase in hedge fund sentiment recently. There were 16 hedge funds in our database with SKYW holdings at the end of June. Our calculations also showed that SKYW 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.

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let’s view the latest hedge fund action encompassing SkyWest, Inc. (NASDAQ:SKYW).

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

At the end of September, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SKYW over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Arrowstreet Capital was the largest shareholder of SkyWest, Inc. (NASDAQ:SKYW), with a stake worth $14.4 million reported as of the end of September. Trailing Arrowstreet Capital was Renaissance Technologies, which amassed a stake valued at $12.8 million. Kettle Hill Capital Management, GLG Partners, and D E Shaw 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 Kettle Hill Capital Management allocated the biggest weight to SkyWest, Inc. (NASDAQ:SKYW), around 1.78% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, setting aside 0.24 percent of its 13F equity portfolio to SKYW.

As industrywide interest jumped, some big names have been driving this bullishness. Kettle Hill Capital Management, managed by Andrew Kurita, created the most valuable position in SkyWest, Inc. (NASDAQ:SKYW). Kettle Hill Capital Management had $7.5 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also initiated a $3.5 million position during the quarter. The following funds were also among the new SKYW investors: Jinghua Yan’s TwinBeech Capital and Cliff Asness’s AQR Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as SkyWest, Inc. (NASDAQ:SKYW) but similarly valued. We will take a look at Zealand Pharma A/S (NASDAQ:ZEAL), Air Transport Services Group Inc. (NASDAQ:ATSG), Addus Homecare Corporation (NASDAQ:ADUS), Virtusa Corporation (NASDAQ:VRTU), Kronos Worldwide, Inc. (NYSE:KRO), Vector Group Ltd (NYSE:VGR), and Otter Tail Corporation (NASDAQ:OTTR). This group of stocks’ market caps are similar to SKYW’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $69 million in SKYW’s case. Virtusa Corporation (NASDAQ:VRTU) is the most popular stock in this table. On the other hand Zealand Pharma A/S (NASDAQ:ZEAL) is the least popular one with only 3 bullish hedge fund positions. SkyWest, Inc. (NASDAQ:SKYW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SKYW is 70. 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 gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on SKYW as the stock returned 43.6% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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