Is Southwest Airlines Co. (LUV) A Good Stock To Buy?

The worries about the economic slowdown in China and the ongoing uncertainty about the path of interest-rate increases triggered several waves of equity sell-offs during the third quarter. Of course, most hedge funds and other asset managers had to stomach substantial losses during the bloody three-month period, which might have caused some to consider fleeing the U.S. equity markets. Interestingly, smaller-cap stocks registered higher losses than large-capitalization stocks during the September quarter, suggesting that institutional investors heavily discarded seemingly riskier equities amid high uncertainty and turmoil. In fact, the Russell 2000 Index lost 11.9% in the third quarter, while the Standard and Poor’s 500 benchmark declined a mere 6.4%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Southwest Airlines Co. (NYSE:LUV).

Southwest Airlines Co. (NYSE:LUV) investors should pay attention to an increase in support from the world’s most elite money managers recently. 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 AFLAC Incorporated (NYSE:AFL), Nokia Corporation (ADR) (NYSE:NOK), and O’Reilly Automotive Inc (NASDAQ:ORLY) to gather more data points.

In the eyes of most investors, hedge funds are seen as slow, outdated financial tools of yesteryear. While there are greater than 8000 funds with their doors open at the moment, We choose to focus on the aristocrats of this club, about 700 funds. These hedge fund managers administer the majority of the hedge fund industry’s total asset base, and by tracking their top stock picks, Insider Monkey has identified a number of investment strategies that have historically defeated the market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Keeping this in mind, let’s take a gander at the new action surrounding Southwest Airlines Co. (NYSE:LUV).

What does the smart money think about Southwest Airlines Co. (NYSE:LUV)?

Heading into Q4, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Egerton Capital Limited, managed by John Armitage, holds the largest position in Southwest Airlines Co. (NYSE:LUV). Egerton Capital Limited has a $639.9 million position in the stock, comprising 7.2% of its 13F portfolio. On Egerton Capital Limited’s heels is Cliff Asness of AQR Capital Management, with a $327 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions include Paul Reeder and Edward Shapiro’s PAR Capital Management, Ken Griffin’s Citadel Investment Group and Robert Polak’s Anchor Bolt Capital.

Consequently, key money managers were breaking ground themselves. Appaloosa Management LP, managed by David Tepper, assembled the largest position in Southwest Airlines Co. (NYSE:LUV). Appaloosa Management LP had $62.2 million invested in the company at the end of the quarter. Crispin Odey’s Odey Asset Management Group also initiated a $45.7 million position during the quarter. The other funds with brand new LUV positions are Michael Messner’s Seminole Capital (Investment Mgmt), Rob Citrone’s Discovery Capital Management, and Anand Parekh’s Alyeska Investment Group.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Southwest Airlines Co. (NYSE:LUV) but similarly valued. We will take a look at AFLAC Incorporated (NYSE:AFL), Nokia Corporation (ADR) (NYSE:NOK), O’Reilly Automotive Inc (NASDAQ:ORLY), and Marathon Petroleum Corp (NYSE:MPC). This group of stocks’ market valuations resemble LUV’s market valuation.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $1306 million. That figure was $2542 million in LUV’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Nokia Corporation (ADR) (NYSE:NOK) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Southwest Airlines Co. (NYSE:LUV) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.