The U.S. Global Jets ETF (NYSEArca: JETS), the only dedicated airline industry-related ETF on the market, is off more than 4% year-to-date, but the airline ETF has also gained more than 4% over the past month, indicating it could be poised to rally into the end of the year.
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.
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.
SEE MORE: Airline ETF Flying High
Some analysts are increasingly bullish on the prospects for airline stocks, including some of the biggest holdings in JETS.
“After suggesting last summer that investors enjoy a break until the turn in RASM became more apparent, we believe said turning point is upon us. Capacity trends continue to tighten, close-in yield progress is apparent, and positive RASM in 2H17 may help unlock stubborn multiples,” according to a JPMorgan note posted by Ben Levisohn of Barron’s.
[related_stories]Barron’s notes that United Continental (UAL), Delta Air Lines (DAL), and American Airlines (AAL), three of the four largest holdings in JETS, trade at price-to-earnings ratios in the single digits. That is a deep discount to the broader industrial sector and the S&P 500.
JETS has also been rising along with oil prices, a rare scenario for airline securities.
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.
“Overstating the obvious: revenue momentum should unlock multiples – Given the current pace of RASM recovery combined with pending initiatives such as Basic Economy at American & United, we expect flattish industry RASM trends in 1H, positive in 2H, with industry consolidated revenue expected to climb 3.7% in 2017, the first increase since 2014,” adds JPMorgan in the note posted by Barron’s.
For more information on airline ETFs, visit our Airline category.
U.S. Global Jets ETF (NYSEArca: JETS)
