According to Berenberg, a Hamburg-based multinational full-service investment bank, the investing community has been worried about airline capacity growth and tepid seat demand. The firm sees the U.S. airlines generating enough free cash flow in a range of market scenarios and judicious opportunities in the space. The firm also pointed out that there should be pretax margin expansion in 2020, even with concerns about pricing. With much debate about the airlines in the news recently, CNBC
traders weighed in Friday on how to play airline stocks, and what Berenberg’s call means.
“Look I used to own American
. I have such a small small tag position there, that’s really for tax purposes. But it’s been a serial under-performer with this management. So why make that bet they’re in the hope the things are gonna change? Own a Delta
. Own a United
. I don’t know that much about Alaska
. I don’t really look at it,” said Chief Investment Officer and Managing Partner of Short Hills Capital Partners LLC, an alternatives investment fund manager.
Delta received a buy rating from Berenberg as well, with 22% upside projected to occur on top of the stock’s gains today. According to analysts, roughly 30% of Delta’s domestic capacity faces no competition at the airports they fly from.
“These stocks have been trading for the last few months on the basis of a recession, on the basis of demand plummeting, airplanes being parked in the Mojave Desert. They’re cyclical and so in this past week you’ve started to get some feeling that maybe the Chinese-US situation will thaw. Some investors should come back in on that, said Jim Lebenthal, a partner at Cerity Partners.
Lebanthal feels that with the US posting strong economic data, a recession is not a concern, and airline stocks could be a good play.
“Look the bottom line is we’re very far away from a recession. Certainly today’s job numbers indicate that in the way these things have been sold out, I don’t care which of those three you pick: Delta United or American. Their international as well as domestic. They’re oversold; so they’re due for a bounce. For me, I actually like Alaska because it is domestic. It’s expanded from regional to transcontinental, and it’s worked through that integration and is now ready to really show the cash flow,” explained Lebenthal.
Investors looking to play the airline sector can explore the U.S. Global Jets ETF (NYSEArca: JETS), the lone ETF dedicated to airline stocks, to access the growth in the airline sector. 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.
The ETF’s top holdings include LUV 12.0%, AAL 11.7%, UAL 11.5% and ALK 4.2%.
For more information on the airline ETF, visit our Airline category.