Free Trial

3 airline stocks you can buy the dip on

3 airline stocks you can buy the dip on

Key Points

  • Airline stocks have taken a beating in the past couple of weeks, driven by one initial incident with Boeing's MAX 9.
  • As these companies share a common virus, your best bet is on a cure coming in soon; here are three deals for you.
  • With momentum and consensus or going against the grain, you can find what fits your portfolio here.
  • 5 stocks we like better than Boeing.

There's always a dip somewhere in the world that investors with a lot of dry powder (cash buying power) patiently wait to deploy their assets into good deals. Who would have thought that the most recent set of opportunities would be found in the airline stocks space today? 

Plenty of factors caused the group to fall to its recent lows. Still, as every coin has two sides, several forces are also at play, strengthening the bullish case for a coming sector turnaround. Considering that airlines depend on two factors, Consumer travel, and business activity, it would be wise to keep an eye on where the cycle is headed.

Today, it is stocks like Southwest Airlines NYSE: LUV, United Airlines NASDAQ: UAL, and even Boeing NYSE: BA that bring you the best potential buying opportunities in the space. The sweetener in this deal is that Wall Street stands behind the thesis, and even the FED sponsors the comeback this time, but more on that later.

Scanners up 

In case you haven't heard, here is some valuable insight to get you up to speed. Analysts at The Goldman Sachs Group NYSE: GS recently rolled out their house view in two important reports. One focuses on their broader expectations for the macro environment this 2024, the other zooming into the possible ranges where oil may trade this year.

First things first, you should know that these two views are interconnected. Suppose the economy experiences a rise in activity and demand. In that case, this will automatically have a bullish effect on the price of oil.

Since high oil prices are bearish for airlines, you may be reassured by the fact that management is preparing for the rising costs. In their latest quarterly earnings press release, Southwest management rolled out their outlooks regarding fuel costs.

In those views, the cost per gallon rose to $2.85 to $2.95 from a lower range of $2.70 to $2.80 a year prior. Hedging expenses are also rising for the updated outlooks, meaning that - just like Goldman - Southwest management has an optimistic view on oil prices.

The market is a popularity contest regarding short-term price fluctuations, and these stocks have not been popular at all. What started with an incident with Boeing's 737 MAX 9 airplane in an Alaska Air NYSE: ALK flight spread into a sector-wide sell-off; this sent United lower by 15.3% in one week, yet Southwest stood its ground, it seems.

Based on your risk appetite, there are three views you can take with this 'special situation' to take advantage of what is going on according to what your portfolio needs. Here it goes:

Pick and choose

Because Goldman mentioned an expected manufacturing sector breakout, this new activity could hit Boeing first. You can read this piece on how that company's earnings will likely not be affected by the faulty MAX 9 since most of their new orders (to be reported this month) only include MAX 8 and MAX 10 models.

Now, there must be a reason why markets willingly pay a premium for Boeing compared to the rest of the industry. A forward price-to-earnings ratio of 56.4x will place this stock at a 166.0% premium to the sector's 21.2x average valuation. As they say, "it must be expensive for a reason".

In this same sense, markets are punishing United Airlines because of its exposure to the faulty MAX 9 jets. If you believe this issue will remain forever, stay away from it, but if your logic argues otherwise, you may face up to a 73.9% upside based on analyst price targets.

So, look, you can use a 5.8x forward P/E ratio to benchmark the airline group's current valuation. United offers you a 31.0% discount with its 4.0x multiple. The opposite applies to "it must be cheap for a reason." But now you know why: a decision will come down to your faith in the MAX 9.

Far from a deep value play like United, Southwest offers less risk by betting along the consensus. Like Boeing, this stock trades at a premium to its peers, at 182.0% above this time. A 16.2x forward P/E comes justified after analysts rolled out their projected EPS growth of 22.1%, also above the peer group.

There you have it. Boeing and United share the same virus, but if you believe the cure is right around the corner, these could be excellent ways to profit by betting against the consensus. If your risk appetite is lower after a tumultuous 2023, Southwest could be the safe haven to get into airlines.

Should you invest $1,000 in Boeing right now?

Before you consider Boeing, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Boeing wasn't on the list.

While Boeing currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

7 Stocks That Could Be Bigger Than Tesla, Nvidia, and Google Cover

Growth stocks offer a lot of bang for your buck, and we've got the next upcoming superstars to strongly consider for your portfolio.

Get This Free Report
Gabriel Osorio-Mazilli
About The Author

Gabriel Osorio-Mazilli

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
The Goldman Sachs Group (GS)
4.9953 of 5 stars
$503.74-0.3%2.38%19.67Moderate Buy$504.75
Alaska Air Group (ALK)
4.6232 of 5 stars
$42.96+0.4%3.49%22.97Moderate Buy$53.60
Southwest Airlines (LUV)
3.7278 of 5 stars
$30.36-0.9%2.37%48.19Hold$30.02
United Airlines (UAL)
3.8385 of 5 stars
$60.26+1.4%N/A7.45Moderate Buy$74.32
Boeing (BA)
3.8009 of 5 stars
$146.67-1.8%5.60%-41.32Moderate Buy$206.00
Compare These Stocks  Add These Stocks to My Watchlist 


Featured Articles and Offers

Recent Videos

Evolv Technologies Stock Up 59%: AI Security & 12-Month Forecast
Housing Prices Soar: These 3 Home Stocks May Benefit
Star Bulk Carriers Stock 28% Upside: Can This Small Cap Deliver?

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines