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Were Hedge Funds Right Snapping Up Delta Air Lines, Inc. (DAL) Shares?

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·6 min read
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In this article we are going to use hedge fund sentiment as a tool and determine whether Delta Air Lines, Inc. (NYSE:DAL) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Delta Air Lines, Inc. (NYSE:DAL) worth your attention right now? Prominent investors were buying. The number of long hedge fund bets increased by 15 recently. Delta Air Lines, Inc. (NYSE:DAL) was in 58 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 109. Our calculations also showed that DAL isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Paul Reeder PAR Capital Management
Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we're going to take a peek at the latest hedge fund action encompassing Delta Air Lines, Inc. (NYSE:DAL).

Do Hedge Funds Think DAL Is A Good Stock To Buy Now?

At fourth quarter's end, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from one quarter earlier. By comparison, 70 hedge funds held shares or bullish call options in DAL a year ago. So, let's see 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?
Is DAL A Good Stock To Buy?

Among these funds, Lansdowne Partners held the most valuable stake in Delta Air Lines, Inc. (NYSE:DAL), which was worth $154.4 million at the end of the fourth quarter. On the second spot was PAR Capital Management which amassed $140.7 million worth of shares. Aristeia Capital, Citadel Investment Group, and Hosking 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 Covalent Capital Partners allocated the biggest weight to Delta Air Lines, Inc. (NYSE:DAL), around 6.02% of its 13F portfolio. Lansdowne Partners is also relatively very bullish on the stock, earmarking 5 percent of its 13F equity portfolio to DAL.

Consequently, key money managers were leading the bulls' herd. Jericho Capital Asset Management, managed by Josh Resnick, created the most valuable position in Delta Air Lines, Inc. (NYSE:DAL). Jericho Capital Asset Management had $49.5 million invested in the company at the end of the quarter. Renaissance Technologies also made a $40.2 million investment in the stock during the quarter. The following funds were also among the new DAL investors: Doug Silverman and Alexander Klabin's Senator Investment Group, Ryan Caldwell's Chiron Investment Management, and Paul Marshall and Ian Wace's Marshall Wace LLP.

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. These stocks are Suncor Energy Inc. (NYSE:SU), TELUS Corporation (NYSE:TU), McCormick & Company, Incorporated (NYSE:MKC), The Clorox Company (NYSE:CLX), Dollar Tree, Inc. (NASDAQ:DLTR), Skyworks Solutions Inc (NASDAQ:SWKS), and First Republic Bank (NYSE:FRC). This group of stocks' market valuations resemble DAL's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SU,25,686120,3 TU,14,183122,2 MKC,36,1880232,-1 CLX,39,1653099,0 DLTR,53,1977339,3 SWKS,41,763595,-9 FRC,34,1270095,3 Average,34.6,1201943,0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.6 hedge funds with bullish positions and the average amount invested in these stocks was $1202 million. That figure was $1059 million in DAL's case. Dollar Tree, Inc. (NASDAQ:DLTR) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Delta Air Lines, Inc. (NYSE:DAL) is more popular among hedge funds. Our overall hedge fund sentiment score for DAL is 76. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on DAL as the stock returned 16.7% since the end of December (through 4/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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