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Is SkyWest, Inc. (SKYW) A Good Stock To Buy?

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like SkyWest, Inc. (NASDAQ:SKYW).

SkyWest, Inc. (NASDAQ:SKYW) was in 15 hedge funds' portfolios at the end of the third quarter of 2019. SKYW investors should be aware of an increase in hedge fund sentiment in recent months. There were 13 hedge funds in our database with SKYW holdings at the end of the previous quarter. Our calculations also showed that SKYW isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_747408" align="aligncenter" width="1613"] Paul Reeder of PAR Capital Management[/caption]

Paul Reeder PAR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to check out the recent hedge fund action surrounding SkyWest, Inc. (NASDAQ:SKYW).

Hedge fund activity in SkyWest, Inc. (NASDAQ:SKYW)

At Q3's end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SKYW over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of SkyWest, Inc. (NASDAQ:SKYW), with a stake worth $112.6 million reported as of the end of September. Trailing Renaissance Technologies was PAR Capital Management, which amassed a stake valued at $26.3 million. Citadel Investment Group, Marshall Wace, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position PAR Capital Management allocated the biggest weight to SkyWest, Inc. (NASDAQ:SKYW), around 0.46% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.1 percent of its 13F equity portfolio to SKYW.

Now, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in SkyWest, Inc. (NASDAQ:SKYW). Arrowstreet Capital had $1.3 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also initiated a $0.4 million position during the quarter. The other funds with brand new SKYW positions are Matthew Hulsizer's PEAK6 Capital Management, John Overdeck and David Siegel's Two Sigma Advisors, and Steve Cohen's Point72 Asset Management.

Let's now review hedge fund activity in other stocks similar to SkyWest, Inc. (NASDAQ:SKYW). We will take a look at WNS (Holdings) Limited (NYSE:WNS), RLJ Lodging Trust (NYSE:RLJ), Itron, Inc. (NASDAQ:ITRI), and Taro Pharmaceutical Industries Ltd. (NYSE:TARO). This group of stocks' market valuations are closest to SKYW's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WNS,18,214456,2 RLJ,19,148775,-2 ITRI,23,435552,1 TARO,10,77317,0 Average,17.5,219025,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $219 million. That figure was $177 million in SKYW's case. Itron, Inc. (NASDAQ:ITRI) is the most popular stock in this table. On the other hand Taro Pharmaceutical Industries Ltd. (NYSE:TARO) is the least popular one with only 10 bullish hedge fund positions. SkyWest, Inc. (NASDAQ:SKYW) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on SKYW, though not to the same extent, as the stock returned 9.1% during the first two months of the fourth quarter and outperformed the market.

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

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