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Where Do Hedge Funds Stand On Southwest Airlines Co. (LUV)?

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As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Southwest Airlines Co. (NYSE:LUV).

Is Southwest Airlines Co. (NYSE:LUV) a bargain? The best stock pickers were taking a bearish view. The number of bullish hedge fund positions dropped by 3 recently. Southwest Airlines Co. (NYSE:LUV) was in 52 hedge funds' portfolios at the end of March. The all time high for this statistic is 58. Our calculations also showed that LUV isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 55 hedge funds in our database with LUV positions at the end of the fourth quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

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, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. 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. With all of this in mind let's analyze the latest hedge fund action regarding Southwest Airlines Co. (NYSE:LUV).

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

At the end of March, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LUV over the last 23 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is LUV A Good Stock To Buy?
Is LUV A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, PAR Capital Management, managed by Paul Reeder and Edward Shapiro, holds the largest position in Southwest Airlines Co. (NYSE:LUV). PAR Capital Management has a $152.7 million position in the stock, comprising 3.5% of its 13F portfolio. On PAR Capital Management's heels is Citadel Investment Group, managed by Ken Griffin, which holds a $86 million call position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish comprise Ken Griffin's Citadel Investment Group, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners and William B. Gray's Orbis Investment Management. In terms of the portfolio weights assigned to each position PAR Capital Management allocated the biggest weight to Southwest Airlines Co. (NYSE:LUV), around 3.54% of its 13F portfolio. CSat Investment Advisory is also relatively very bullish on the stock, setting aside 3.15 percent of its 13F equity portfolio to LUV.

Seeing as Southwest Airlines Co. (NYSE:LUV) has experienced a decline in interest from the aggregate hedge fund industry, it's safe to say that there were a few hedge funds that slashed their full holdings heading into Q2. Intriguingly, Parvinder Thiara's Athanor Capital sold off the biggest position of the "upper crust" of funds watched by Insider Monkey, totaling about $33.5 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund said goodbye to about $22 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds heading into Q2.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Southwest Airlines Co. (NYSE:LUV) but similarly valued. We will take a look at Prudential Financial Inc (NYSE:PRU), Roblox Corporation (NYSE:RBLX), Cintas Corporation (NASDAQ:CTAS), Xcel Energy Inc (NYSE:XEL), Lufax Holding Ltd (NYSE:LU), Phillips 66 (NYSE:PSX), and PPG Industries, Inc. (NYSE:PPG). This group of stocks' market caps resemble LUV's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRU,37,634521,1 RBLX,46,3387779,46 CTAS,32,582628,-4 XEL,18,200349,-10 LU,9,208197,-2 PSX,24,290593,-2 PPG,25,173679,-9 Average,27.3,782535,2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $783 million. That figure was $747 million in LUV's case. Roblox Corporation (NYSE:RBLX) is the most popular stock in this table. On the other hand Lufax Holding Ltd (NYSE:LU) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Southwest Airlines Co. (NYSE:LUV) is more popular among hedge funds. Our overall hedge fund sentiment score for LUV is 78.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Unfortunately LUV wasn't nearly as popular as these 5 stocks and hedge funds that were betting on LUV were disappointed as the stock returned -5.7% since the end of the first quarter (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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

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