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Hedge Funds Never Been Less Bullish On Delta Air Lines, Inc. (DAL)

Debasis Saha

In this article we will take a look at whether hedge funds think Delta Air Lines, Inc. (NYSE:DAL) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Delta Air Lines, Inc. (NYSE:DAL) shareholders have witnessed a decrease in hedge fund sentiment of late. Our calculations also showed that DAL isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

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 44 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_747408" align="aligncenter" width="400"] Paul Reeder of PAR Capital Management[/caption]

Paul Reeder PAR Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea.  For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. We interview hedge fund managers and ask them about best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a peek at the key hedge fund action encompassing Delta Air Lines, Inc. (NYSE:DAL).

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

At Q1's end, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DAL over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DAL A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Warren Buffett's Berkshire Hathaway has the biggest position in Delta Air Lines, Inc. (NYSE:DAL), worth close to $2.0509 billion, comprising 1.2% of its total 13F portfolio. Sitting at the No. 2 spot is Lansdowne Partners, managed by Alex Snow, which holds a $293.5 million position; the fund has 16.3% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include Paul Reeder and Edward Shapiro's PAR Capital Management, Cliff Asness's AQR Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Lansdowne Partners allocated the biggest weight to Delta Air Lines, Inc. (NYSE:DAL), around 16.26% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, setting aside 4.89 percent of its 13F equity portfolio to DAL.

Due to the fact that Delta Air Lines, Inc. (NYSE:DAL) has witnessed bearish sentiment from the smart money, it's easy to see that there were a few money managers that elected to cut their entire stakes heading into Q4. Intriguingly, Stephen C. Freidheim's Cyrus Capital Partners dumped the largest position of the 750 funds monitored by Insider Monkey, comprising an estimated $149.7 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund sold off about $145.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 17 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Delta Air Lines, Inc. (NYSE:DAL) but similarly valued. We will take a look at AmerisourceBergen Corporation (NYSE:ABC), Chipotle Mexican Grill, Inc. (NYSE:CMG), Cintas Corporation (NASDAQ:CTAS), and China Unicom (Hong Kong) Limited (NYSE:CHU). All of these stocks' market caps are closest to DAL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ABC,41,634674,1 CMG,48,2674255,0 CTAS,42,458144,-3 CHU,6,47948,-5 Average,34.25,953755,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $954 million. That figure was $2970 million in DAL's case. Chipotle Mexican Grill, Inc. (NYSE:CMG) is the most popular stock in this table. On the other hand China Unicom (Hong Kong) Limited (NYSE:CHU) is the least popular one with only 6 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. Unfortunately DAL wasn't nearly as popular as these 10 stocks and hedge funds that were betting on DAL were disappointed as the stock returned -20.5% during the second quarter (through May 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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