Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 34.7% in 2019 (through November 22) and outperformed the broader market benchmark by 8.5 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Delta Air Lines, Inc. (NYSE:DAL) a cheap investment now? The best stock pickers are taking a pessimistic view. The number of long hedge fund bets went down by 5 in recent months. Our calculations also showed that DAL isn't among the 30 most popular stocks among hedge funds. Below we compared DAL's hedge fund sentiment against a group of similarly valued stocks such as Roper Industries, Inc. (NYSE:ROP), China Telecom Corporation Limited (NYSE:CHA), Welltower Inc. (NYSE:WELL), and Canadian Imperial Bank of Commerce (NYSE:CM).
To most market participants, hedge funds are assumed to be worthless, old investment vehicles of years past. While there are more than 8000 funds with their doors open at the moment, Our researchers hone in on the leaders of this club, approximately 750 funds. Most estimates calculate that this group of people watch over most of the hedge fund industry's total asset base, and by observing their best stock picks, Insider Monkey has found many investment strategies that have historically surpassed the broader indices. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_747408" align="aligncenter" width="1613"] Paul Reeder of PAR Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's go over the new hedge fund action regarding Delta Air Lines, Inc. (NYSE:DAL).
How have hedgies been trading Delta Air Lines, Inc. (NYSE:DAL)?
Heading into the fourth quarter of 2019, a total of 65 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 67 hedge funds with a bullish position in DAL a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Delta Air Lines, Inc. (NYSE:DAL) was held by Berkshire Hathaway, which reported holding $4084.4 million worth of stock at the end of September. It was followed by Lansdowne Partners with a $778 million position. Other investors bullish on the company included PAR Capital Management, AQR Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Lansdowne Partners allocated the biggest weight to Delta Air Lines, Inc. (NYSE:DAL), around 20.7% of its portfolio. Cyrus Capital Partners is also relatively very bullish on the stock, setting aside 15.73 percent of its 13F equity portfolio to DAL.
Seeing as Delta Air Lines, Inc. (NYSE:DAL) has faced declining sentiment from the smart money, logic holds that there is a sect of hedge funds that decided to sell off their entire stakes last quarter. Interestingly, Steve Cohen's Point72 Asset Management cut the biggest investment of the 750 funds watched by Insider Monkey, valued at an estimated $33.8 million in call options, and Ross Margolies's Stelliam Investment Management was right behind this move, as the fund said goodbye to about $33.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 5 funds last quarter.
Let's go over 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 Roper Industries, Inc. (NYSE:ROP), China Telecom Corporation Limited (NYSE:CHA), Welltower Inc. (NYSE:WELL), and Canadian Imperial Bank of Commerce (NYSE:CM). This group of stocks' market caps are similar to DAL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROP,37,1044629,2 CHA,8,24410,1 WELL,15,364970,-2 CM,15,220104,3 Average,18.75,413528,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $414 million. That figure was $6997 million in DAL's case. Roper Industries, Inc. (NYSE:ROP) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 8 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 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately DAL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DAL were disappointed as the stock returned -1.9% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.