The U.S. Global Jets ETF (NYSEArca: JETS) tumbled earlier this week following a disappointing fourth-quarter earnings report from United Continental (NYSE: UAL), one of the largest components in JETS. However, some analysts believe the long-term outlook remains for favorable for airline stocks.
The industry is also supported by strong fundamentals with high barriers of entry that makes the sector capitalize on a wide economic moat that has attracted the attention of prominent value investor Warren Buffett.
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.
Top holdings include American Airlines Group (Nasdaq: AAL), United Continental (NYSE: UAL), Delta Airlines (NYSE: DAL) and Southwest Airlines (NYSE: LUV).
“Southwest, American Airlines, JetBlue and Alaska Air are all set to report Thursday before the opening bell; U.S. airlines are on track for their eighth straight year of profits in 2017. Delta reported quarterly earnings earlier this month, broadly beating Wall Street estimates,” reports CNBC.
These airline carriers generate roughly two-thirds of revenue from business travel, and any recovery in corporate pricing as a result of tax reforms could disproportionately benefit those companies.
High oil prices used to be seen as a major issue for airlines’ profitability, but that view is shifting, indicating the industry can endure higher fuel prices.
“The conventional wisdom now is that oil prices are high, so maybe airlines stocks are going to get hit, but I don’t think that’s the case anymore. They are such well-run machines at this point, they’re basically IT businesses masquerading as transportation businesses,” said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, in an interview with CNBC.
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.
For more information on the airline ETF, visit our Airline category.