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Summary: Leading hedge fund and mutual fund managers that have a long-term track record of generating high alpha are slightly under-weight in the airline and air cargo industry group. Their best buy ideas in the group are air freight provider United Parcel Service (NYSE:UPS), and passenger airline majors Delta Air Lines Inc. (NYSE:DAL) and US Airways Group Inc. (LCC).

What are the top new buy and sell ideas of high alpha generating funds in the airline industry? In this article, through research of the latest available institutional 13-F and 13-D/G (5% ownership) filings (as recent as 10 days old), we identify the stocks in this group that were most bought and sold by a select group of high alpha generating funds numbering less than 100. This select list represents less than one-half of one percent of the total number of U.S. equity investment funds, but together these high alpha or guru funds control almost ten percent of total U.S. equity discretionary fund assets. The credentials of each high alpha fund that justify its inclusion in this elite group were detailed in our previous articles, many of which can be accessed by clicking on the hyperlinks referencing them in this article.

The savvy investor may consider leveraging this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the high alpha fund best picks. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation.

This series is a follow-up to our previous series that identified top guru holdings by industry group. It updates that information for the most recent quarter, and identifies the stocks in the group most bought and sold by guru funds during the quarter, their top holdings in the group, and the number of guru funds that hold the stock. Based on this analysis, we determined that guru funds are slightly under-weight in the airline industry by a factor of 0.85. The following are their top buys, sells and holdings:

  • United Parcel Service (UPS) delivers packages and documents throughout the U.S. and in over 200 other countries. Fifteen guru funds own $805 million, including adding $285 million during the quarter. Eight of the nine funds added to their positions includes Viking Global Investors adding $128 million, The Children’s Fund Investment Management LLP adding $94 million, Balyasny Asset Management LLC adding $38 million, Kingdon Capital Management LLC adding $30 million, Egerton Capital Ltd. adding $25 million, SAC Capital Advisors LP adding $15 million, Tremblant Capital Group adding $2 million, and two additional hedge funds making relatively minor buys. The only major sell was $50 million was Capital Growth Management LP. Thus, gurus taken as a group are bullish on UPS as it is the second largest holding, and eight funds added to their holding and only one cut its position in the last quarter. UPS currently trades at a forward 14 price-to-earnings (P/E), near the bottom of its historic P/E range; and in the most recent quarter, it beat estimates and raised guidance, and a slew of analysts, including Deutsche Bank, HSBC, Barclays and RBC have recently raised their target price on the stock in the mid-$90s.
  • United Continental Holdings (NYSE:UAL) provides air transportation for passengers, freight and mail with over 5,850 flights daily to over 280 destinations. Seven guru funds own $566 million, including eight funds adding a net $212 million during the quarter. This includes Capital Growth Management LP adding $194 million, Appaloosa Management LP adding $43 million, Balyasny Asset Management LLC adding $4 million, and SAC Capital Advisors LP adding $4 million. This is somewhat countered by smaller sells by guru funds as in Kingdon Capital Management LLC selling $14 million, Legg Mason Capital Management selling $10 million, Donald Smith & Co. selling $7 million and Driehaus Capital Management selling $3 million.
  • Delta Air Lines Inc. (DAL) provides international and domestic passenger and cargo transportation in the U.S. and abroad. Six guru funds own $245 million, including seven funds adding a net $211 million during the quarter. This includes $155 million added by Capital Growth Management LP adding $155 million, Appaloosa adding $20 million, Balyasny Asset Management LLC adding $18 million, SAC Capital Advisors LP adding $11 million, Zweig-DiMenna Associates adding and $6 million. Thus, gurus taken as a group are bullish on DAL as it is among their largest positions in the group, and five funds added large positions in DAL while only two made insignificant minor cuts in DAL positions during the quarter. DAL trades at a forward P/E of 4-5, at the bottom of its historic P/E range. Analyst targets are in the mid- to high-teens, almost double current prices in the $9 range, and significantly below the low-teens where guru funds bought it in the last quarter. Furthermore, of the fourteen analysts covering the stock, ten rate it a buy/strong buy, two a hold, and two rate it at underperform/sell.
  • US Airways Group Inc. (LCC) is a holding company primarily for US Airways, an air carrier engaged in transporting passengers, cargo and mail. Six guru funds own $160 million, including seven funds adding a net $122 million during the quarter. This includes Appaloosa adding $83 million, Capital Growth Management LP adding $22 million and Hussman Econometrics Advisors adding $13 million. Thus, gurus taken as a group are bullish on LCC as it is among their larger positions in the group, and five funds added large position in LCC while only one made insignificant minor cuts in its LCC position during the quarter. LCC trades at a forward P/E of 4-5, at the bottom of its historic P/E range. Analyst targets are in the mid-teens, more than 60% above current prices in the $9 range; and of the fourteen analysts covering the stock, seven rate it a buy/strong buy, seven a hold, and none rate it at underperform/sell.
  • FedEx Corp. (NYSE:FDX) provides express, ground small-parcel and less-than-truckload deliveries, and office and print services. Six guru funds own $1.06 billion, including seven funds adding a net $107 during the quarter. This includes Oakmark Funds adding $66 million, SAC Capital Advisors LP adding $19 million, Balyasny Asset Management LLC adding $12 million and Zweig-DiMenna Associates adding $9 million; countered by Longleaf Mutual Funds selling $6 million.
  • JetBlue Airways Corp. (NASDAQ:JBLU) provides point-to-point passenger airline service to 60 cities in 20 states, Puerto Rico, Caribbean and Latin America. Donald Smith & Co. owns $184 million after adding $65 million during the quarter. Two other funds, Al Frank Asset Management and SAC Capital Advisors LP own insignificant amounts of this stock.Southwest Airlines Co. (NYSE:LUV) provides predominantly short-haul, high-frequency, point-to-point, domestic airline service to 69 cities in 35 states. Five guru funds own $105 million, including four funds adding a net $55 million during the quarter. This includes Capital Growth Management LP adding $53 million and Hussman Econometrics Advisors adding $2 million.
  • Ryanair Holdings Plc ADR (NASDAQ:RYAAY) is an Irish passenger airline serving over 1,300 scheduled short-haul, point-to-point flights throughout Europe and Morocco. Five guru funds own $106 million, including Brave Warrior Capital LLC owning $95 million, Fairfax Financial Holdings owning $5 million, Tiger Global Management LLC owning $4 million, and Ruane Cunniff & Goldfarb Inc. and Chou Associates Management Inc. each owning $1 million.
  • Republic Airways Holdings (NASDAQ:RJET) is a holding company for Chautauqua Airlines, Republic Airlines and Shuttle America offering 1,250 flights daily to 109 cities. Three guru funds own $54 million, including Donald Smith & Co. owning $30 million, Greenlight Capital Inc. owning $22 million, and T2 Partners Management LP owning $1 million. With a market cap of only $215 million, guru funds cumulatively control a quarter of the outstanding shares in RJET. Furthermore, two guru funds added to their RJET positions and only cut its position, so gurus taken as a group are bullish on RJET. RJET trades at a forward P/E of 10, near the top of its historic P/E range, while the stock is incurring huge losses to the tune of 39c a share or $19 million last quarter. The company has huge debt of over $2.5 billion and cash and cash equivalents of only $470 million, as it is incurring these huge losses, and stock dropping to all-time lows seems to be pricing in a complete business failure or possible bankruptcy.
  • AMR Corp. (AMR) provides air transportation for passengers to 160 destinations in North and South America, Europe and Asia. Three guru funds own $43 million, including Appaloosa Management LP owning $37 million, Capital Growth Management LP owning $4 million and SAC Capital Advisors LP owning $1 million.
  • Atlas Air Worldwide Holding (NASDAQ:AAWW) provides air cargo and outsourced aircraft operating solutions worldwide, and it operates through four segments: Aircraft, Crew, Maintenance, and Insurance (ACMI); Air Mobility Command (NYSE:AMC) Charter; Commercial Charter; and Dry Leasing. Four guru funds own $26 million, including Royce & Associates LLC owning $20 million, Driehaus Capital Management owning $3 million, and SAC Capital Advisors LP and Gotham Asset Management LLC each owning $1 million.
  • Alaska Air Group Inc. (NYSE:ALK) provides airline passenger transportation via its Alaska Airlines and Horizon Air subsidiaries. Three guru funds own $27 million, including Capital Growth Management LP owning $26 million, all of which was bought in the last quarter, and SAC Capital Advisors LP owning $1 million.
  • Air Transport Services Group (NASDAQ:ATSG) through its subsidiaries provides air cargo transportation services; airlift services, including aircraft, aircraft flight crews, and maintenance services; airlift services to other airlines, freight forwarders, and the U.S. military; freight transportation and supply chain management services; passenger transportation primarily to the U.S. military; air charter brokerage services, fuel management, and specialized cargo management services; and warehousing and cargo handling services, as well as aircraft leasing. Three guru funds own $15 million, down $6 million from the prior quarter. Major holders of this stock include Pabrai Investment Funds owning $12 million, Driehaus Capital Management owning $2 million, and Gotham Asset Management LLC owning $1 million. Furthermore, during the quarter, Pabrai sold $6 million and both Driehaus Capital Management and Kahn Brothers & Co. sold $0.4 million each, lowering the cumulative guru holding in the company by a third.

Table

Company

Ticker

Market Value of Guru Holdings

Guru New Buys

Guru New Sells

Number of Gurus in Stock

Top Buys and Sells

United Parcel Service Inc.

UPS

$805 million

$336 million

($51) million

15

United Continental Hldgs.

UAL

$573 million

$252 million

($33) million

7

Delta Air Lines Inc.

DAL

$250 million

$216 million

($4) million

7

U S Airways Group Inc.

LCC

$160 million

$122 million

($3) million

6

FedEx Corp.

FDX

$1.06 billion

$107 million

($10) million

6

JetBlue Airways Corp.

JBLU

$184 million

$65 million

($3) million

1

Southwest Airlines Co.

LUV

$105 million

$55 million

($4) million

5

Top Guru Holdings

Ryanair Hldgs Plc

RYAAY

$106 million

$0 million

($10) million

5

Republic Airways Hldgs.

RJET

$54 million

$7 million

($3) million

3

AMR Corp.

AMR

$43 million

$12 million

$0 million

3

Other Stocks Held by Two or More Gurus

Atlas Air Worldwide Hldgs.

AAWW

$26 million

$7 million

$0 million

4

Alaska Air Group Inc.

ALK

$27 million

$26 million

$0 million

3

Air Transport Services Group

ATSG

$15 million

$0 million

($7) million

3

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Airline Industry: 3 Buy Ideas From High Alpha Funds