There are multiple reasons why the overall airline market has been bearish lately. This includes the large influx of negative incidents related to Boeing (NYSE:BA). As most readers are undoubtedly aware, alleged issues with quality control on BA’s part led to multiple, less-than-ideal incidents occurring. Recently, the entire sector had a meltdown, primarily due to the global technology outage caused by Crowdstrike (NASDAQ:CRWD) releasing an update that had critical errors in it.
As a result, multiple airline stocks are trading at weekly, monthly or yearly lows. This is despite the sector’s revenue per passenger kilometers growing at 11.6% year-over-year (YOY), and a 9.7% increase in revenue this year, as per the International Air Transport Association. Thus, we are ripe for a market correction that will help retail investors. Here are a few airline stocks that are likely to recover from recent lows and generate handsome returns.
Delta Air Lines (DAL)
Delta Air Lines (NYSE:DAL) is a company focused on both the consumer and commercial aspects of aviation. While the vast majority of its hubs lie in North America, DAL has a significant global presence. The company’s stock price is down almost 8% over the last month, indicating that now is the time to buy.
The company has been consistent with meeting revenue expectations. In all four of the last four quarters, DAL has met expectations, even exceeding them in three. Analysts have given the company an average price target of $60.63, indicating potential growth of over 33% before the end of this year. Additionally, the company’s financials are great as a return on equity of 43.81% indicates efficient allocation of resources. It is something that gets passed on to shareholders.
However, it might be wise to wait a little before investing. The technological outage towards the end of last week has created quite a lot of negative publicity, which could cause the company to slip even further. Regardless, nothing immediately suggests that DAL is a bad investment for the long term. Whenever you get in, if you hold, it is sure to give you decent returns.
American Airlines Group (AAL)
American Airlines Group (NASDAQ:AAL) is another company that specializes in both consumer and cargo-centric aviation. It operates primarily in the U.S.. However, through partnerships with gateways abroad, it has established a presence in London, Tokyo and other major cities. The stock is currently trading at $10.58 and is down over 68% in the last five years.
Despite this, AAL still holds a price target of $13.35, which is set by taking the average price targets from 15 analysts. This yields an expected return of over 26% by the end of this year, far surpassing the expectations set for the broader market. However, the company faces significant challenges. Its profit margins are extremely thin. Although it has seen year-on-year quarterly revenue growth of 3.1%, AAL hasn’t seen a sizeable increase in profit.
Acquisition of talent is going to be a driving factor of growth when it comes to AAL. It needs experienced professionals who can apply their skills to its business. With that being said, Tulsa Tech’s aviation school has partnered with AAL. Should management take more steps to address expenditure inefficiency, I see this stock outperforming many in the sector.
United Airlines (UAL)
United Airlines (NASDAQ:UAL) is yet another commercial aviation giant. While it is based out of the U.S., it has operations all around the world and is a member of the influential Star Alliance. United recently beat Q2 earnings, however, the stock is still down almost 49% over the past five years.
While market indicators are bearish in the short term, analysts are predicting annual growth rates of 26.66% annually for the next five years. This is almost certain to increase the value of your investment. The company also seems to be severely undervalued, with analysts predicting a 50+% jump before the end of the year. Financially speaking, UAL appears to be in a great position relative to both DAL and AAL, with positive quarterly revenue and profit growth as well as a decent profit margin.
UAL is expected to grow as the sector does. Its globally diversified offerings allow it to appeal to customers regardless of where they’re from. This diversification also acts as a hedge against conflict or trouble in a particular area causing a sharp dip in revenue. Thus, this is a strategic investment you shouldn’t overlook.
On the date of publication, Achintya Pasricha did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
