Southwest Airlines Co (LUV) — I last recommended LUV stock as the Trade of the Day on Sept. 3. With shares trading at $37.90, I advised readers to buy at $36 with a trading target of $46 by year end.
LUV stock touched a low of $36.74 the next day and then took off, hitting my target in less than two months and running to a high above $51 in early December. Now, following a pullback and rebound, LUV stock again looks like a buy.
In my September recommendation, I commended the company on its low debt, conservative financial policies, steady revenue growth and 41 (now 42) consecutive years of profitability.
S&P Capital IQ Equity Research, which rates LUV stock a “Strong Buy” with a 12-month price target of $55, notes Southwest has the “healthiest balance sheet among the major U.S. airlines.” Its analysts look for its above-average revenue growth to continue, with Southwest posting a 6% increase in 2016, followed by 5.5% growth in 2017. And earnings are expected to jump 21% to $4.25 per share this year and another 5% next year to $4.48.
LUV stock made a new all-time high on Dec. 7 at $51.34. The following day, shares opened a gap down from $49.41 to $47.60. That gap remained open as LUV stock headed lower.
Shares finally bottomed on Feb. 8, just below $34, and then rallied to a high of almost $43 on Feb. 26. Since then, they have pulled back some, but according to the MACD indicator, LUV stock is still overbought. Therefore, it will probably continue to fall on profit taking until it finds support at the conjunction of the 50-day and 200-day moving averages at about $40.
Buy LUV stock at $40 with a trading target of $49 for a potential short-term return of more than 22%.
