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.
JETS is heavily allocated to United, Delta Air Lines (DAL), American Airlines Group (AAL) and Southwest Airlines (LUV).
The Bernstein analyst “has Outperform ratings on Delta Air Lines (DAL), American Airlines Group (AAL), Southwest Airlines (LUV), and United, writing that underlying results remain strong and that he’s optimistic the industry will be able to sustain elevated levels of performance. He did however tweak his price targets slightly lower for each to account for higher fuel prices,” reports Barron’s.
Related: Airline ETF is Clear for Takeoff
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. The sector also shows relatively cheap valuations.
For more information on the airline ETF, visit our Airline category.