7 Airline Stocks Hedge Fund Managers Love

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 |  Includes: AAL, ALK, DAL, JBLU, LUV, UAL
by: Insider Monkey

“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money,” said Warren Buffett in his 2008 shareholder letter. “Think airlines.”

Air travel is an industry that is highly affected by the economy – airlines are expensive to run, and when the economy is poor, air travel goes down. Money manager Karl Mills explains: “Airlines are serial destroyers of capital. They’re going to go up and down with the health of the economy relative to the price of oil. Ultimately they get themselves in trouble.” Air travel is a challenging business, and it is difficult to find a way in which to make money at it, but it is possible. Here is a list of seven airline stocks that hedge funds love.

Delta Air Lines Inc. (NYSE:DAL): Of the 300+ hedge funds we track, 41 had positions in DAL at the end of the third quarter, representing a total investment of $636.01 million. While the total number of funds invested in the company did not change from the end of the second quarter, the total volume of investment did, falling from $807 million at the end of June. Ken Heebner’s Capital Growth Management wasn’t deterred, though. The fund opened a new position in DAL during the third quarter.

United Continental Holdings, Inc. (NYSE:UAL): There were 33 hedge funds invested in UAL at the end of the third quarter, compared to 38 at the end of the second quarter. The total volume of hedge fund investment also declined from $1.40 billion to $1.28 billion. The decrease may be significant, but the hedge funds with largest positions in UAL weren’t selling. Ken Heebner’s Capital Growth Management opened a new $156.98 million position in the company during the third quarter, while Paul Reeder and Ed Shapiro’s PAR Capital Management upped its stake by +31% to $281.96 million at the end of September.

U.S. Airways Group (LCC): This company fell considerably in total hedge fund interest during the third quarter, moving from $235.72 million at the end of June to $111.73 million at the end of September. However, the total number of hedge funds invested in the company did not change nearly as much, falling from 18 at the end of the second quarter to 16 at the end of the third quarter. Ken Heebner’s Capital Growth Management and David Tepper’s Appaloosa Management each owned considerable positions in LCC at the end of the third quarter.

AMR Corp (AMR): Hedge funds largely abandoned AMR during the third quarter. The number of hedge funds invested in the company fell from 19 at the end of June to 13 at the end of September, while the total volume of hedge fund investment plummeted from $197.43 million to just $50.11 million. We opted to include this stock because both David Tepper’s Appaloosa Management and Paul Reeder and Ed Shapiro’s Par Capital Management decided to stay on board. Each fund kept more than 4.2 million shares.

Southwest Airlines Co (NYSE:LUV): Hedge funds also love regional airlines like LUV. Both D.E. Shaw’s D E Shaw and Ric Dillon’s Diamond Hill Capital increased their positions in LUV during the third quarter, ending September with $51.05 million and $30.38 million invested in LUV respectively. However, many other hedge fund managers were not as bullish about this company. The total number of hedge funds invested in LUV went from 28 funds at the end of June to just 16 at the end of September. The volume of hedge fund investment in the company also fell, dropping from $424.86 million at the end of the second quarter to end the third quarter at $158.70 million.

Alaska Air Group, Inc. (NYSE:ALK): The number of hedge funds invested in ALK fell from 18 at the end of the second quarter to 16 at the end of the third quarter, but the total amount hedge funds had invested in the company actually increased in the third quarter, moving from $258.06 million at the end of June to $277.83 million at the end of September. Jim Simon’s Renaissance Technologies is a fan. The fund upped its stake in ALK by +6% to $100.48 million in the third quarter.

JetBlue Airways Corp (NASDAQ:JBLU): The number of hedge funds invested in JBLU fell from 17 at the end of the second quarter to 15 at the end of the third quarter. However, the volume of hedge fund investment increased markedly, from $83.93 million at the end of June to $129.56 million at the end of September. Paul Reeder and Ed Shapiro’s Par Capital Management is a fan of the company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.