Hedge Funds' Favorite And Least Favorite Airline Stocks

Credit Suisse detailed in a research report on Thursday the findings from its quarterly airline survey of hedge funds and large investors.

The survey consisted of 62 participants and found that only 45 percent of those surveyed are overweight airlines, down from 61 percent in mid-March. Long-only participants are now 42 percent overweight, down from 75 percent in March.

Over 50 percent of participants are now less invested on the long side compared to January and only 16 percent are more invested. As a whole, hedge funds are incrementally short the airline sector versus investors.

Investors are "frustrated" with airlines and "conviction remains low," as the respondents rated their sentiment 3.5 out of 10 on average. Investors also expect capacity cuts to be announced in the upcoming second-quarter results and conference call.

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Top Picks

Long only investors noted their top pick remains Delta Air Lines, Inc. (NYSE: DAL), followed by Southwest Airlines Co (NYSE: LUV), which overtook United Continental Holdings Inc (NYSE: UAL) in the quarter as the second-most favored name.

Southwest Airlines was the top pick among hedge funds, followed by Spirit Airlines Incorporated (NASDAQ: SAVE), which jumped to the number 2 spot from the number 6 spot last survey.

Least Favorite Picks

The top underweights, American Airlines Group Inc (NASDAQ: AAL) and United Continental Holdings Inc (NYSE: UAL) tied for the top spot among respondents.

Ironically, hedge funds also selected Southwest Airlines as its top underweight holding, which rose to 16 percent (3rd place) from just 2 percent (last place) in March.

JetBlue Airways Corporation (NASDAQ: JBLU) was also the preferred underweight name among investors who self-identified as "less bearish on the name at these depressed levels."

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