Trade of the Day: LUV Stock Could Soar 23% After a Dip

Advertisement

Southwest Airlines Co (NYSE:LUV) — I last covered LUV stock on Dec. 17, recommending traders buy shares under $38 with a target of $45. They pulled back to just above $38 in mid-January before running to a new 52-week high of $46.41 on Monday.

On Friday, the company announced fourth-quarter results that beat analysts’ estimates on the top and bottom line.

S&P Capital IQ, which has a “buy” rating on LUV stock, recently raised its price target to $53 from $42. Its analysts also raised their full-year 2015 earnings estimate to $3.12 per share from $2.34.

The mean consensus target is $53.88 with a high target of $66. The consensus earnings estimate is for a 70% jump this year to $3.42 per share.

Southwest is currently unhedged on jet fuel, so it is benefiting greatly from lower oil prices. However, if fuel prices were to suddenly rise, these estimates would likely be adjusted lower.

This airline’s chart represents an ideal bullish pattern. LUV stock is trading in a clearly defined bull channel with several continuation gaps, three buys signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR), high volume on the buy side, and a strong buy from the MACD indicator.

Following a correction in mid-October, LUV stock quickly recovered and firmly established the bull channel with general support at its 50-day moving average. Shares closed Monday within a point of the top of the channel and, therefore, could pull back offering a better entry point.

Buy LUV stock at $43 with a trading target of $53 for a potential return of more than 23%. Traders should enter a stop-loss order at $38.

 LUV Stock Chart
Click to Enlarge

Chart Key


Article printed from InvestorPlace Media, https://investorplace.com/2015/01/southwest-airlines-co-luv-stock-trade-day-2/.

©2024 InvestorPlace Media, LLC