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Delta Air Lines, Inc. (DAL): Are Hedge Funds Right About This Stock?

Reymerlyn Martin

Before we spend days researching a stock idea we'd like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 13.5% in the fourth quarter. Seven out of 11 industry groups in the S&P 500 Index were down more than 20% from their 52-week highs at the trough of the stock market crash. The average return of a randomly picked stock in the index was even worse. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 15 most popular S&P 500 stocks among hedge funds not only recouped their Q4 losses but also outperformed the index by more than 3 percentage points. In this article, we will take a look at what hedge funds think about Delta Air Lines, Inc. (NYSE:DAL).

Delta Air Lines, Inc. (NYSE:DAL) has experienced an increase in hedge fund sentiment lately. Our calculations also showed that DAL is among the 30 most popular stocks among hedge funds, ranking 25th.

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 32 percentage points since May 2014 through March 12, 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.

AQR CAPITAL MANAGEMENT

We're going to check out the latest hedge fund action surrounding Delta Air Lines, Inc. (NYSE:DAL).

How have hedgies been trading Delta Air Lines, Inc. (NYSE:DAL)?

At the end of the fourth quarter, a total of 73 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DAL over the last 14 quarters. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

DAL_mar2019

More specifically, Berkshire Hathaway was the largest shareholder of Delta Air Lines, Inc. (NYSE:DAL), with a stake worth $3270.2 million reported as of the end of September. Trailing Berkshire Hathaway was Lansdowne Partners, which amassed a stake valued at $1267.6 million. PAR Capital Management, Two Sigma Advisors, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, specific money managers have jumped into Delta Air Lines, Inc. (NYSE:DAL) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Delta Air Lines, Inc. (NYSE:DAL). Arrowstreet Capital had $33.8 million invested in the company at the end of the quarter. Stanley Druckenmiller's Duquesne Capital also made a $31.3 million investment in the stock during the quarter. The following funds were also among the new DAL investors: Crispin Odey's Odey Asset Management Group, Paul Marshall and Ian Wace's Marshall Wace LLP, and Matt Simon (Citadel)'s Ashler Capital.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Delta Air Lines, Inc. (NYSE:DAL) but similarly valued. These stocks are Kinder Morgan Inc (NYSE:KMI), Prudential Financial Inc (NYSE:PRU), Royal Bank of Scotland Group plc (NYSE:RBS), and Fidelity National Information Services Inc. (NYSE:FIS). All of these stocks' market caps match DAL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KMI,48,1658607,-2 PRU,31,516818,-2 RBS,3,26762,-3 FIS,37,1540485,1 Average,29.75,935668,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $936 million. That figure was $6626 million in DAL's case. Kinder Morgan Inc (NYSE:KMI) is the most popular stock in this table. On the other hand Royal Bank of Scotland Group plc (NYSE:RBS) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Delta Air Lines, Inc. (NYSE:DAL) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately DAL wasn't in this group. Hedge funds that bet on DAL were disappointed as the stock returned 3.3% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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