Airline stocks in general have had a wildly successful year, many of them soaring to new all-time-highs on double-digit gains.
Investors should take advantage and sell these airline stocks, because this is a famously cyclical industry and its rallying days are numbered.
Airline stocks are getting a big boost from today’s lower gasoline prices, which significantly reduce costs and increase earnings for these companies. Twelve-month increases of 50% aren’t unheard of in this industry, thanks to those fuel cost trends.
And, while gas prices do have some room to fall further and continue to improve earnings, investors should carefully consider whether they want to bank on that movement in commodities or, in an arguably more savvy move, take these meaty gains in airline stocks now.
After all, many of these airlines are relying too heavily on these low fuel costs to help their bottom line, and they haven’t proven that they can draw reliable revenue increases.
Here are three airline stocks to sell now.
Airline Stocks to Sell: Delta Air Lines (DAL)
Now is a good time to exit Delta Air Lines (DAL) stock, with shares rallying on a third-quarter earnings beat.
DAL stock was up about 2% early in Wednesday’s session after the airline reported adjusted net income of $1.74 per share, up 45% from the year prior, and above the Street view of $1.72 per share.
Delta shares now have a fairly expensive valuation of 21.6 compared to its peers in the airline industry. Consider the more affordable end of the airline stocks spectrum: American Airlines Group (AAL) with a valuation of 7.6 and United Continental Holdings (UAL) with a price-to-earnings ratio of 8.3.
But Delta’s impressive post-earnings gains were clearly leaning heavily on reduced costs like tumbling gas prices. Total revenue actually declined slightly to $11.11 billion from $11.12 billion a year prior, although above the Street view of $11.10 billion.
Delta blamed the revenue decline on the strong U.S. dollar and “global economic uncertainty,” but said that demand remains strong. The company expects an increase of 2.5% to 4.5% in passenger unit revenue for the fourth quarter.
DAL stock, having marked an all-time high of $51.06 earlier this year, has been closing in on this benchmark level in recent sessions. DAL stock is up 47.2% the past year, but shares are flat year-to-date.
Airline Stocks to Sell: JetBlue (JBLU)
JetBlue Airways (JBLU) is certainly no bargain now, even after shares took a beating in Tuesday’s session as JPMorgan downgraded the stock to from “overweight” to “neutral,” with a price target of $27.
Like Delta, JBLU stock’s price-to-earnings ratio, which is 18.4, is well above its peers. After Jet Blue’s extreme gains this year, with JBLU stock up 54% so far, investors have much cheaper alternatives among airline stocks, like Spirit Airlines (SAVE), with a valuation of 13.7.
Earlier this week, JetBlue Airways said its September traffic, measured in revenue passenger miles, was up 13.3% year-over-year to 3.1 billion. Total capacity, measured in available seat miles, increased 13.1% and preliminary passenger revenue per available seat mile increased 1% year-over-year.
JetBlue is trying to stand out from other airlines by working on offering free wi-fi Internet on every plane. JBLU said on Wednesday that the initiative is making strides. Expect more details when the company reports earnings on Oct. 22.
Airline Stocks to Sell: Alaska Air Group (ALK)
Alaska Air Group (ALK), with a price-to-earnings valuation of 13.5, is a bit more of a bargain now than JetBlue and Delta, but ALK stock is still inflated.
ALK stock has surged 75% over the past year and is up roughly 25% year-to-date. But ALK stock is down 8% in the past month, and investors would do well to take the drop as a sign that Alaska Air’s strong rally days are over.
On Tuesday, Evercore downgraded Alaska Air shares were downgraded from “buy” to “hold,” sending ALK stock to close down more than 5%.
Earlier this month, the company reported revenue passenger miles were up 10% in September with available seat miles up 10.3%. Alaska Air reports third-quarter earnings Oct. 22, with analysts expecting earnings of $2.09 per share versus $1.47 per share the same quarter a year ago.
In the second quarter, Alaska Air reported that earnings had increased 46% from the year prior, and revenue grew 5%.
As of this writing, Rebecca McClay did not hold a position in any of the aforementioned securities.
