Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Alaska Air Group, Inc. (NYSE:ALK).
Alaska Air Group, Inc. (NYSE:ALK) was in 22 hedge funds' portfolios at the end of the second quarter of 2019. ALK shareholders have witnessed an increase in enthusiasm from smart money in recent months. There were 20 hedge funds in our database with ALK holdings at the end of the previous quarter. Our calculations also showed that ALK isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to analyze the new hedge fund action surrounding Alaska Air Group, Inc. (NYSE:ALK).
Hedge fund activity in Alaska Air Group, Inc. (NYSE:ALK)
Heading into the third quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the first quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in ALK a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Alaska Air Group, Inc. (NYSE:ALK) was held by PAR Capital Management, which reported holding $173.2 million worth of stock at the end of March. It was followed by Diamond Hill Capital with a $132.9 million position. Other investors bullish on the company included Point72 Asset Management, Balyasny Asset Management, and Citadel Investment Group.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Albar Capital, managed by Javier Velazquez, established the biggest position in Alaska Air Group, Inc. (NYSE:ALK). Albar Capital had $20.5 million invested in the company at the end of the quarter. Gregg Moskowitz's Interval Partners also initiated a $7.6 million position during the quarter. The other funds with brand new ALK positions are Sander Gerber's Hudson Bay Capital Management, Jeffrey Talpins's Element Capital Management, and Karim Abbadi and Edward McBride's Centiva Capital.
Let's now review hedge fund activity in other stocks similar to Alaska Air Group, Inc. (NYSE:ALK). These stocks are Zayo Group Holdings Inc (NYSE:ZAYO), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), Post Holdings Inc (NYSE:POST), and Aurora Cannabis Inc. (NYSE:ACB). This group of stocks' market valuations are closest to ALK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZAYO,59,1893644,-2 ALNY,35,957098,9 POST,26,1506924,-1 ACB,10,28795,-1 Average,32.5,1096615,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1097 million. That figure was $560 million in ALK's case. Zayo Group Holdings Inc (NYSE:ZAYO) is the most popular stock in this table. On the other hand Aurora Cannabis Inc. (NYSE:ACB) is the least popular one with only 10 bullish hedge fund positions. Alaska Air Group, Inc. (NYSE:ALK) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on ALK, though not to the same extent, as the stock returned 2.2% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.