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Is Alaska Air Group, Inc. (ALK) A Good Stock To Buy According To Hedge Funds?

Debasis Saha

In this article we will check out the progression of hedge fund sentiment towards Alaska Air Group, Inc. (NYSE:ALK) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Alaska Air Group, Inc. (NYSE:ALK) a buy, sell, or hold? Investors who are in the know are becoming less confident. The number of bullish hedge fund bets fell by 12 recently. Our calculations also showed that ALK isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ALK was in 27 hedge funds' portfolios at the end of March. There were 39 hedge funds in our database with ALK holdings at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_758429" align="aligncenter" width="400"] Ric Dillon of Diamond Hill Capital[/caption]

Ric Dillon Diamond Hill Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a glance at the recent hedge fund action regarding Alaska Air Group, Inc. (NYSE:ALK).

How are hedge funds trading Alaska Air Group, Inc. (NYSE:ALK)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ALK over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ALK A Good Stock To Buy?

The largest stake in Alaska Air Group, Inc. (NYSE:ALK) was held by PAR Capital Management, which reported holding $54.5 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $51.2 million position. Other investors bullish on the company included AQR Capital Management, Citadel Investment Group, and Arrowstreet Capital. 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 2.32% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, setting aside 1.54 percent of its 13F equity portfolio to ALK.

Due to the fact that Alaska Air Group, Inc. (NYSE:ALK) has faced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedgies that slashed their positions entirely in the first quarter. It's worth mentioning that Joe Milano's Greenhouse Funds sold off the biggest investment of all the hedgies followed by Insider Monkey, valued at close to $21.4 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also sold off its stock, about $16.3 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 12 funds in the first quarter.

Let's now take a look at hedge fund activity in other stocks similar to Alaska Air Group, Inc. (NYSE:ALK). These stocks are Terreno Realty Corporation (NYSE:TRNO), BJ's Wholesale Club Holdings, Inc. (NYSE:BJ), Zai Lab Limited (NASDAQ:ZLAB), and Cullen/Frost Bankers, Inc. (NYSE:CFR). All of these stocks' market caps are closest to ALK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRNO,10,26182,-4 BJ,26,156840,4 ZLAB,22,364537,-4 CFR,18,40108,0 Average,19,146917,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $263 million in ALK's case. BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Alaska Air Group, Inc. (NYSE:ALK) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on ALK, though not to the same extent, as the stock returned 20.1% in Q2 (through the end of May) and outperformed the market as well.

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

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