United Continental Holdings Inc (NYSE:UAL) faced a major computer glitch which prevented it from operating flights on Wednesday for almost two hours. The computer problem prevented the U.S’ number two airlines operator to check in its passengers, thereby delaying 1,200 flights worldwide and canceling around 61 flights. United Continental Holdings Inc (NYSE:UAL), which began its operations as United Airlines before acquiring Continental Airlines almost five years back, has seemingly been unable to streamline and perfect its operations since, facing a series of technical and maintenance disruptions over the past few years. United Continental Holdings Inc (NYSE:UAL)’s stock dropped by 2.64% on Wednesday following the flight delays and cancellations. That follows airlines stocks getting battered on July 1 after the Justice Department’s announcement that it will be investigating possible collusion between airlines to slow down their growth, thereby keeping airfares and margins higher. United Continental Holdings Inc (NYSE:UAL) dropped more than 6% that day following the announcement. United Continental’s stock has dropped by more than 20% so far this year.
Despite the operating woes, the smart money clearly sees some underlying strength in the airliner, as they were slightly bullish on the company earlier this year. There were 78 hedge funds with $3.92 billion invested in the stock at the end of March, compared to 79 hedge funds with $3.73 billion in holdings three months earlier. Considering the fact that the stock gained just 1.8% in the first three months of this year, hedge funds opted to invest more in the stock during the first trimester, even as it was suspected the industry would be facing headwinds it didn’t face in 2014.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 80 percentage points since the end of August 2012 when this system went live, returning a cumulative 135% vs. less than 55% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. In the case of United Continental Holdings Inc (NYSE:UAL), there have been no insider purchases of the company’s stock so far this year, but there have been a few insider sales. Executive VP of Human Resources at UAL, Michael Bonds sold around 6,500 shares in January, while Executive VP of Communications, Irene Foxhall sold around 7,500 shares in the first quarter.
Let’s take a look at the hedge fund activity surrounding United Continental Holdings Inc (NYSE:UAL).
How are hedge funds trading United Continental Holdings Inc (NYSE:UAL)?
According to Insider Monkey’s database, GMT Capital, managed by Thomas E. Claugus, holds the most valuable position in United Continental Holdings Inc (NYSE:UAL). GMT Capital holds around 7.00 million shares worth $474.4 million at the end of March, comprising 11.5% of its 13F portfolio. On GMT Capital’s heels is OZ Management, managed by Daniel S. Och, which held around 5.00 million shares of the company at the end of the first quarter; the fund had 1.1% of its 13F portfolio invested in the stock. Remaining peers with similar optimism contain Brad Gerstner’s Altimeter Capital Management, David Tepper‘s Appaloosa Management LP, and Leon Cooperman‘s Omega Advisors.
Even though the number of hedge fund positions in United Continental Holdings Inc (NYSE:UAL) was reduced by one during the first trimester, the aggregate capital invested into the stock increased. This shows that some hedge funds opted to walk out of the stock, but some hedge funds opened large positions in the stock during the first quarter as well. Notably, GMT Capital also opened the largest position in the stock during the January – March period. Ken Heebner‘s Capital Growth Management said goodbye to the biggest investment in the stock meanwhile, as it dumped around 1.00 million shares.
Hedge funds invested more in United Continental Holdings Inc (NYSE:UAL) during the first three months, but the company has dropped around 21% of its value since the end of the first quarter and can’t seem to get its operations smoothed over. Considering the recent dip in the stock performance and the negative sentiment swirling around the company, we don’t recommend buying this stock at the moment.
Disclosure: None
