With demand taking off, global airlines just raised their profit forecast to $30.5 billion for the year. All as they prepare for about five billion passengers, as noted by the International Air Transport Association. That’s just over 11% higher than last year’s numbers. All of which should fuel undervalued airline stocks.
Additionally, travel demand is only getting stronger. According to TripAdvisor, “Americans and travelers around the world continue to place a high priority on summer vacations, according to the annual Summer Travel Index released today by Tripadvisor, the world’s largest travel guidance platform. In fact, 95 percent of respondents are planning to travel as much (51%) or more (44%) than last summer, despite some concern about economic headwinds.”
That being said, airline stocks – especially undervalued airline stocks – could take off.
American Airlines (AAL)
Over the last few days, American Airlines (NASDAQ:AAL) gapped from about $15 to a recent low of $11.62. All after it cut its profit and revenue guidance. However, it does appear that most of the negativity has been priced into the now-oversold stock.
It’s also over-extended on RSI, MACD and Williams’ %R at the moment. In addition, AAL now trades at less than growth, with a price-to-earnings growth ratio of just 0.29, and at less than sales with a price-to-sales (P/S) ratio of 0.16.
In fact, I’d use that crisis as an opportunity to buy. Sure, a few top analysts at Susquehanna, Seaport Research, and TD Cowen lowered their price targets on AAL. But at this point, the pullback is overkill, and I’d again use this drop as an opportunity.
Remember, as we’ve learned from Baron Rothschild, the time to buy is when the blood is flowing in the street, even if the blood is your own.
JetBlue Airways (JBLU)
I’d also use the recent weakness in JetBlue Airways (NASDAQ:JBLU) as an opportunity.
After gapping from about $7.50 to $5.50 on a lowered outlook, it appears that weakness has been priced in here, too. It’s also trading at less than sales with a P/S ratio of 0.19. With travel season nearing, and higher demand for flights, I don’t see JBLU staying grounded for long.
We also have to consider that the forecast is better than expected.
As noted by MarketWatch.com, “The airline now expects a 2% to 4% drop in available seat miles in the second quarter, whereas its prior forecast called for a 2% to 5% drop. Additionally, JetBlue (JBLU) anticipates a 6.5% to 9.5% decline in revenue, compared with its prior outlook calling for a 6.5% to 10.5% drop.” In addition, JBLU continues to see healthy demand.
As with AAL, I’d use weakness as an opportunity to buy JBLU.
US Global Jets ETF (JETS)
If you’d rather diversify with undervalued airline stocks at a lower cost, there’s always the US Global Jets ETF (NYSEARCA:JETS). With an expense ratio of 0.60%, the ETF diversifies with airline operators and manufacturers all over the world.
Some of its top holdings include United Airlines (NASDAQ:UAL), Delta Air Lines(NYSE:DAL), American Airlines, Alaska Air Group (NYSE:ALK), JetBlue, Boeing (NYSE:BA), Booking Holdings (NASDAQ:BKNG), Expedia Group (NASDAQ:EXPE), Trip.com (NASDAQ:TCOM).
At the moment, if I wanted to buy 100 shares of JETS, it would cost about $2,015. With this ETF, I gain exposure to dozens of airline-related stocks. Meanwhile, if I were to buy 100 shares of just Booking Holdings, it would cost me just under $383,100.
On the date of publication, Ian Cooper did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
