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Alaska Air Group, Inc. (ALK): Are Hedge Funds Right About This Stock?

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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Alaska Air Group, Inc. (NYSE:ALK) in this article.

Is Alaska Air Group, Inc. (NYSE:ALK) a buy here? The best stock pickers were getting more bullish. The number of bullish hedge fund positions inched up by 6 in recent months. Alaska Air Group, Inc. (NYSE:ALK) was in 38 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 42. Our calculations also showed that ALK isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Paul Reeder PAR Capital Management
Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to go over the recent hedge fund action regarding Alaska Air Group, Inc. (NYSE:ALK).

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

At second quarter's end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ALK over the last 24 quarters. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Paul Reeder and Edward Shapiro's PAR Capital Management has the most valuable position in Alaska Air Group, Inc. (NYSE:ALK), worth close to $114.6 million, accounting for 2.8% of its total 13F portfolio. Coming in second is Steve Cohen of Point72 Asset Management, with a $54.4 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish include Ric Dillon's Diamond Hill Capital, Robert Bishop's Impala Asset Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Alaska Air Group, Inc. (NYSE:ALK), around 3.24% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, setting aside 2.81 percent of its 13F equity portfolio to ALK.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Impala Asset Management, managed by Robert Bishop, assembled the largest position in Alaska Air Group, Inc. (NYSE:ALK). Impala Asset Management had $48.7 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also initiated a $11.6 million position during the quarter. The following funds were also among the new ALK investors: Paul Marshall and Ian Wace's Marshall Wace LLP, Mika Toikka's AlphaCrest Capital Management, and Benjamin A. Smith's Laurion Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Alaska Air Group, Inc. (NYSE:ALK) but similarly valued. These stocks are FirstService Corporation (NASDAQ:FSV), Royal Gold, Inc (NASDAQ:RGLD), Luminar Technologies, Inc. (NASDAQ:LAZR), Voya Financial Inc (NYSE:VOYA), Cimarex Energy Co (NYSE:XEC), Credit Acceptance Corp. (NASDAQ:CACC), and Scientific Games Corp (NASDAQ:SGMS). This group of stocks' market values are similar to ALK's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FSV,13,250969,-4 RGLD,20,241288,3 LAZR,21,193173,9 VOYA,44,983651,2 XEC,36,1134161,-3 CACC,20,574521,-3 SGMS,24,1451681,1 Average,25.4,689921,0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $690 million. That figure was $506 million in ALK's case. Voya Financial Inc (NYSE:VOYA) is the most popular stock in this table. On the other hand FirstService Corporation (NASDAQ:FSV) is the least popular one with only 13 bullish hedge fund positions. Alaska Air Group, Inc. (NYSE:ALK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ALK is 77.5. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and beat the market again by 4.4 percentage points. Unfortunately ALK wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ALK were disappointed as the stock returned -3.1% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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