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Allegiant Travel Company (ALGT): These Hedge Funds Cashed Out Too Early

Abigail Fisher

Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Allegiant Travel Company (NASDAQ:ALGT) investors should pay attention to a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that ALGT 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.

5 Most Popular Stocks Among Hedge Funds

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

ALGT_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, 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 review the latest hedge fund action surrounding Allegiant Travel Company (NASDAQ:ALGT).

How have hedgies been trading Allegiant Travel Company (NASDAQ:ALGT)?

Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ALGT over the last 16 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Ric Dillon Diamond Hill Capital

More specifically, PAR Capital Management was the largest shareholder of Allegiant Travel Company (NASDAQ:ALGT), with a stake worth $233.2 million reported as of the end of March. Trailing PAR Capital Management was Diamond Hill Capital, which amassed a stake valued at $78 million. First Pacific Advisors LLC, Royce & Associates, and Mountain Lake Investment Management were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Allegiant Travel Company (NASDAQ:ALGT) has witnessed bearish sentiment from hedge fund managers, we can see that there were a few fund managers that slashed their positions entirely heading into Q3. At the top of the heap, John Tompkins's Tyvor Capital dumped the largest stake of the 750 funds monitored by Insider Monkey, worth about $13 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dumped about $3.4 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to Allegiant Travel Company (NASDAQ:ALGT). We will take a look at Atlantica Yield plc (NASDAQ:AY), Welbilt, Inc. (NYSE:WBT), MyoKardia, Inc. (NASDAQ:MYOK), and Universal Forest Products, Inc. (NASDAQ:UFPI). This group of stocks' market valuations are closest to ALGT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AY,18,203361,-3 WBT,25,850267,-2 MYOK,24,732265,-10 UFPI,17,64097,-3 Average,21,462498,-4.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $462 million. That figure was $473 million in ALGT's case. Welbilt, Inc. (NYSE:WBT) is the most popular stock in this table. On the other hand Universal Forest Products, Inc. (NASDAQ:UFPI) is the least popular one with only 17 bullish hedge fund positions. Allegiant Travel Company (NASDAQ:ALGT) 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 ALGT, though not to the same extent, as the stock returned 4.8% during the third quarter and outperformed the market.

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

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