Oil prices and airline stocks, historically, display inverse correlations.
Conventional wisdom dictates that falling oil price are good for airline equities and that when oil prices, airlines can be pinched because fuel is the largest input cost in the airline business.
That makes what is currently happening with the U.S. Global Jets ETF (NYSEArca: JETS) and the United States Oil Fund (NYSEArca: USO) unique. JETS, the only dedicated airline ETF, is up 4.2% over the past month while USO, which tracks West Texas Intermediate crude oil futures, is higher by 5.3% over the same period.
JETS follows the U.S. Global Jets Index, which uses fundamental screens to select airline companies, with an emphasis on domestic carriers, along with global aircraft manufacturers and airport companies.
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Along with lower oil prices, airline stocks look attractive in their own right. For instance, income-oriented investors may notice that airline stocks have seen improved dividend-yield growth. Additionally, the sector shows relatively cheap valuations. Airline stocks have a 7 times price-to-earnings ratio, whereas the broader transportation stocks have a 15 times ratio and the S&P 500 index shows 17 times P/E.
“Over the last three months, the NYSE Arca Airline Index — the XAL — and the price of crude have been moving in tandem. The two typically trade inversely as higher oil is typically bad for the group and vice versa,” reports CNBC.
[related_stories]The ability of JETS and its holdings to rise in the face of rising oil prices, usually a major headwind, is undoubtedly impressive. It is also encouraging because some market observers believe oil prices can continue climbing.
SEE MORE: Airline ETF Flying High
OPEC plans to diminish output to a range of 32.5 to 33.0 million barrels per day from its current estimated output of 33.24 million barrels per day. While Saudi Arabia, OPEC’s biggest producer, has agreed to reduce output, Iran, Libya and Nigeria might not follow suit.
“Master technical analyst Louise Yamada says two charts show that crude, still largely trapped in a long-term bear market for more than a year, is targeting new levels around $70,” reports CNBC.
For more information on airline ETFs, visit our Airline category.
U.S. Global Jets ETF (NYSEArca: JETS)
