We recently compiled a list of the 10 Best Airline Stocks To Buy According To Short Sellers. In this article, we are going to take a look at where Alaska Air Group, Inc. (NYSE:ALK) stands against the other airline stocks.
The COVID-19 pandemic’s impact on travel caused an alarming 54.1% drop in the airline industry’s revenue from $838 billion in 2019 to $384 billion in 2020, according to the International Air Transport Association (IATA). However, the industry has subsequently risen substantially, with annual revenue estimated to reach $996 billion by 2024, representing 18.8% growth from 2019 and a 159% recovery from the pandemic low.
On the other hand, the Business Research Company projects that the global airline market will grow at a compound annual growth rate of 8.2%, from $523.04 billion in 2023 to $566.06 billion in 2024. Whereas in the upcoming years, a significant expansion in the size of the airline industry is anticipated at a CAGR of 8.8% to $794.61 billion in 2028. According to the aforementioned research, the increase in the number of air passengers is fueling the growth of the airline industry. For example, in March 2023, the US government’s Bureau of Transportation Statistics reported that the number of passengers carried by US airlines rose by 30% from 658 million in 2021 to 853 million in 2022. Regionally, Asia-Pacific was the world’s largest airline market in 2023, and it is also projected to be the fastest-growing region in the airline market study throughout the forecast year.
Furthermore, the booming airline market is also being driven by the growing tourism market. For instance, in December 2022, the New Zealand government ministry, the Ministry of Business, Innovation, and Employment, reported that tourism spending in the country hit $26.5 billion, up 2.7% from $704 million a year before. Most importantly, arrivals of foreign visitors to New Zealand jumped by 335.3% to 229,370.
Consumer confidence in leisure travel is still high. Jamie Baker, analyst for aircraft leasing and U.S. airlines states: “Our prevailing thesis is that premium and international demand for air travel remains in the lead.” Nonetheless, limited capacity and lower costs are two challenges that airlines around the globe are dealing with. On the other hand, in China, the rate of domestic passenger yield is anticipated to stay high, while the rate of outbound tourism is projected to increase in the upcoming months. The IATA has raised the industry’s projected profit for 2024 in Asia Pacific by almost 18%. According to its longer-term projections, Asia Pacific will have the fastest global growth in air travel demand, with a passenger CAGR of 5.3% over the next 20 years.
Meanwhile, the US airlines have emphasized debt reduction, which should assist in strengthening their balance sheets and credit ratings over time. The domestic industry reported a total debt of $143 billion at the end of 2023, a decline of around 15% from 2021 levels. Investors who keep a long-term perspective and diversify their portfolios may gain from the industry’s revival and expansion in the future years.
Methodology:
We sifted through holdings of airline ETFs and online rankings to form an initial list of 20 airline stocks. Then we selected the 10 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted. We’ve also mentioned the number of hedge funds that have long positions in these stocks as of Q2, 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A commercial passenger jet in the sky, performing its daily flight duties.
Alaska Air Group, Inc. (NYSE:ALK)
% of shares shorted: 6.29%
Number of Hedge Fund Holders: 30
When it comes to the number of scheduled passengers it carries, Alaska Air Group, Inc. (NYSE:ALK) is among the “biggest airlines worldwide.” Alaska and Horizon are the two airlines that the company runs. McGee Air Services, a provider of aviation services, is also included. Three segments comprise its operations: Mainline, Regional, and Horizon.
Offering unique discounts on more than 900,000 hotels and vacation rentals worldwide, the airline company and Expedia Group have recently partnered to launch Stays by Alaska Vacations.
Last month, Analyst Andrew Didora of Bank of America Securities maintained his Buy rating on Alaska Air Group, Inc. (NYSE:ALK), citing the company’s solid financial standing and advantageous position in the market.
The airline’s efficient cost control allowed its second-quarter 2024 EPS to outperform Wall Street consensus and Didora’s projections. The company’s revenue expectations are still strong despite a less optimistic third-quarter EPS estimate, suggesting resilience and possible growth against anticipated seasonal decreases.
One of the biggest airlines worldwide, ALK has an attractive value, trading at $35.72, close to historically low levels, and its strong West Coast network helps make up for its exposure to challenges from excessive capacity elsewhere.
Analyst Didora’s optimistic assessment is supported by the strengthening domestic revenue environment, even with the anticipated higher costs resulting from a new flight attendant agreement. Rather than a decline in the company’s fundamentals, the recent labor agreement is the reason for the tightened full-year earnings guidance. This cautious approach is anticipated to be transitory, preserving optimism in the airline and supporting the possibility of stock appreciation.
Analysts are bullish on the stock. Barclays also gave the company a Buy rating with a $58.00 price objective. Citing solid profitability, strategic moves like the Hawaiian Airlines acquisition, and favorable margin performance, Citi analyst Stephen Trent kept a Buy rating on Alaska Air with a $54.00 price objective. Bank of America Securities has also given the stock a Buy rating with a $50.00 price objective, stressing its competitive position and growth prospects.
ALK is one of the Best Airline Stocks To Buy According To Short Sellers with only 6.29% of shares shorted. ALK has hedge fund sentiments of 30 in Q2 2024. Ken Griffin’s Citadel Investment Group is the largest shareholder in the company, with 3,905,807 shares worth $157.79 million, as of Q2, 2024.
Overall ALK ranks 7th on our list of the best airline stocks to buy according to short sellers. While we acknowledge the potential of ALK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ALK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
