Earnings Could Have Airline ETF Flying Higher

The U.S. Global Jets ETF (NYSEArca: JETS), the lone ETF dedicated to airline stocks, is lower by about 1% over the past week, but earnings reports from some of the fund’s marquee constituents could send the fund flying higher.

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. JETS is trading at a 10.0 price-to-earnings and a 2.2 price-to-book.

Airlines have underperformed the broader market in the past month, as investors worry about rising geopolitical tensions and higher fuel prices. United Continental’s (UAL) earnings report, due out Tuesday, could be an opportunity to move sentiment back into positive territory, but either way airlines look like a buy today, argues Bernstein’s David Vernon,” reports Teresa Rivas for Barron’s.

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There are encouraging fundamental factors that supporting the airlines, including low oil prices – fuel is the largest input cost for airlines. The improving U.S. economy could also encourage more business and leisure travel and airlines are generating impressive amounts of cash.

Recent Selling Could Abate Airlines

Airline stocks have recently been under pressure, but some analysts believe the selling is overdone and that the group has near-term upside potential.

“Vernon thinks that the recent selling looks overdone, thanks to ongoing robust demand that should allow airlines to pass higher fuel prices onto consumers by raising fares, and spur capacity discipline in the market,” according to Barron’s.