We recently compiled a list of the 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. In this article, we are going to take a look at where Delta Air Lines, Inc. (NYSE:DAL) stands against the other very cheap stocks to buy according to hedge funds.
As we approach the third half of 2024, the market’s performance continues to draw in both investors and analysts alike. After rising by an average of 24% the year before, the 500 largest-cap US equities finished the second quarter of this year with an impressive gain of over 3%, on average. Overall, the unexpectedly resilient U.S. economy and the frenzied AI boom have propelled equities to unprecedented levels.
Even though the markets are currently worried about a slowdown, most recent economic indicators complement this market performance, demonstrating the US economy’s resilience. The Commerce Department revealed a 3.1% YoY gain in Q4,2023 for the economy, primarily due to solid consumer expenditure on dining out, healthcare, and automobiles. The world’s largest economy’s growth prediction was slightly revised by the IMF to 2.6% this year, pointing out the country’s robust and adaptable nature to changes in the global economy. According to Economic Intelligence’s consumer goods and retail outlook study for 2024, global retail sales are projected to rise by 6.7% in 2024, bolstered by a 2% increase in volume, regardless of a dip in inflation.
This brings us to industries that are selling at a discount, of which, broadcasting is one, at an EV to EBITDA ratio of 7.31. According to The Business Research Company, the television and radio broadcasting markets have expanded significantly in recent years. It is expected to grow from $439.41 billion in 2023 to $466.83 billion in 2024, at a CAGR of 6.2%. According to Future Market Insights, North America has the largest market share globally for television broadcasting services, followed by Asia Pacific.
The introduction of digital transmission and the Internet caused a major transformation in the television industry. Broadcast television and cable coexist with cable substitutes like HBO Max, Netflix, and Amazon Prime Video. Many others have completely cut their cable connections, opting to get all of their television needs met online. The Motion Picture Association of America reports that the film and television industries have a major economic impact, employing 2.5 million people annually and paying out over US$ 188 billion in compensation.
Another industry trading at a reduced price is air transportation, which has an EV to EBITDA ratio of 6.17. The Business Research Company reports that the size of the air transport market has expanded dramatically in recent years. The projected CAGR is 6.8%, which would see it rise from $1,016.38 billion in 2023 to $1,085.37 billion in 2024. Furthermore, it is anticipated that during the next several years, the size of the air transport sector will rise significantly. With a 6.5% CAGR, it will reach $1,394.51 billion in 2028.
The future expansion of the air transport market is anticipated to be driven by the growth of e-commerce and online shopping. For example, in September 2022, the US Department of Commerce’s International Trade Administration reported that consumer e-commerce accounted for 30% of the UK’s total retail market (up from 20% in 2020), with over $120 billion in e-commerce sales annually. In the UK, 82% of individuals will have made at least one online transaction by 2021.
Methodology:
We selected stocks with an institutional ownership of over 70% and a PE ratio under 10, as of June 25 for our list of 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. We narrowed down our selection to 10 stocks that were the most widely held by institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them as of Q1 of 2024. In cases where two or more stocks have the same number of hedge funds, we’ve used the PE ratio as a tie-breaker.
In order to identify cheap stocks, we searched for companies with a strong earnings track record by evaluating their EPS over the last two to three years. Secondly, we only considered stocks that received “buy” or “strong buy” recommendations from analysts.
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
An aerial view of a commercial aircraft taking off from a coastal hub.
Delta Air Lines, Inc. (NYSE:DAL)
Number of Hedge Fund Holders: 51
PE Ratio as of August 1: 6.27
Delta Air Lines, Inc. (NYSE:DAL), which offers scheduled air transportation for passengers and cargo in the United States and abroad, is one of the best very cheap stocks to purchase right now, according to hedge funds. Delta Air Lines (NYSE:DAL) is the most competitive of the major hubs, accounting for around 70% to 75% of the market in the top six hubs and deploying more than half of its production capacity. In terms of domestic revenue, Delta Air Lines, Inc. (NYSE:DAL) is also the largest airline operating in the United States.
Given that its PE ratio of 6.02 is lower than the weighted average PE ratio of 12.67 for the airline industry, DAL is seen as a very cheap stock to buy now, given its reasonable financial performance in the past year.
Delta Air Lines, Inc. (NYSE:DAL) stands out as a compelling choice for investors seeking undervalued opportunities since its PE ratio is 6.75 with positive hedge fund sentiments of 51 in Q1 2024. Jeremy Hosking’s Hosking Partners is the biggest shareholder in the company, with 519,217 shares worth $24.63 million.
After second-quarter earnings were reported, the stock dropped by 3%. Despite marginally exceeding revenue estimates, Delta Air Lines’ second-quarter earnings revealed that unit revenue growth was behind capacity growth. Q2 revenue is above analyst projections of $15.7 billion by $16.66 billion. Nevertheless, a 5% rise in passenger revenue was exceeded by an 8% increase in capacity, putting pressure on unit revenues and yields.
In Q2 2024, compared to the same quarter the year before, Delta’s emphasis on premium items and loyalty travel rewards resulted in an 8% increase in loyalty awards and a 10% increase in premium revenues. Notwithstanding these advantages, overall income climbed by 7%, while operating expenditures also increased by 10% due to rising wages, rising fuel prices (up 12%), and increasing maintenance costs. Operating margins dropped from 17.1% to 14.7% as a result, unit costs shot up by 0.6%, and passenger revenue per available seat mile decreased by 3%.
Delta anticipates 2-4% revenue growth in Q3 on a 5-6% increase in capacity. Unit expenses are anticipated to increase by 1% to 2%, and margins are predicted to range from 11% to 13%. The firm anticipates issues as a result of a weaker-than-expected summer.
Overall, the company’s financial condition is solid, with a total annual revenue of $58.04 billion in 2023, up 14.76% from the previous year. Delta’s net income for the same period was $4.61 billion, up from $1.32 billion in 2022. Delta Air Lines is attracting attention as one of the businesses with the highest proportion of high-value corporate and premium traffic, and business traffic accounts for over 40% to 50% of the company’s revenue. The company’s earnings are expected to grow by 10% in 2025.
Delta’s stock is seen as cheap despite recent price drops. Analysts’ average price targets are $62.68, which would be a 51.04% increase in value from the $41.50 stock price as it is right now.
Oakmark Fund stated the following regarding Delta Air Lines, Inc. (NYSE:DAL) in its first quarter 2024 investor letter:
“Delta Air Lines, Inc. (NYSE:DAL) is a leading global airline. Of the big three U.S.-based airlines (Delta, United and American), we see Delta as the most competitively advantaged. We believe the company’s years of industry-leading operational performance and investments in the customer experience have established Delta as the premium brand in the industry. We also think its geographically optimal hubs, high local market share, robust loyalty program and unique corporate culture all support healthy returns on capital. Delta currently trades at 6x our estimate of normalized earnings per share. We believe this is an attractive valuation for a competitively advantaged and growing business in an out-of-favor industry.”
Even with pressure on costs and capacity, Delta Air Lines is still cheap and in a strong position. The stock is suggested for purchase, however, due to industry-wide cost and capacity concerns, caution is urged.
Overall DAL ranks 6th on our list of the very cheap stocks to buy. You can visit 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds to see the other very cheap stocks to buy that are on hedge funds’ radar. While we acknowledge the potential of DAL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DAL 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.
