We recently published a list of the 10 Best Airline Stocks to Buy For 2024. Since American Airlines Group Inc (NASDAQ:AAL) ranks 3rd on the list, it deserves a deeper look.
Despite rising inflation, consumers worldwide continue to spend on travel and experiences, defying all expectations and forecasts. Latest data from the International Air Transport Association (IATA) estimates that the airline industry is expected to generate $30.5 billion in net income in 2024, driven by higher ticket prices and consumers’ desire to travel. Last year, the industry’s net income came in at $27.4 billion. According to data from the World Travel & Tourism Council (WTTC) the economic impact of the travel industry this year is expected to soar to $11.1 trillion, beating its previous level of $10 trillion recorded in 2019. The Council expects the tourism industry to become a $16 trillion industry over the next decade, accounting for about 11.4% of the global GDP.
However, not all is rosy in the airline industry. The competition in the industry is increasing, while geopolitical headwinds and rising employee costs continue to batter small and large airline companies. IATA was quick to highlight that despite the industry growth, airlines’ profit per passenger is just $6.14. Travel demand in China also remains subdued amid real estate and economic crisis in the country. However, analysts believe sooner or later the country would rebound and the best airline and travel companies would benefit from the influx of Chinese tourists.
A KPMG report on the airline industry highlighted the resilience of the airline industry and its fast recovery to pre-pandemics levels:
“The latest air travel data from IATA shows that passenger travel for November 2023 globally has reached 99.1% of November 2019 levels. November 2023 international RPKs reached 94.5% of November 2019 levels, while domestic traffic was 6.7% above the November 2019 level. Although international global travel remains 5.5% below pre-pandemic levels, IATA director general Willie Walsh said that the gap is “rapidly closing”, adding that current “economic headwinds are not deterring people from taking to the skies”. IATA also noted that long-term airline profitability shows that while the industry is exposed to external shocks, it typically returns to profitability “relatively quickly”.”
In this backdrop, we decided to take a look at some of the best airline stocks to buy in 2024 according to hedge funds. For that we first listed down all holdings of an airline ETF, which provides investors exposure to the airline industry and tracks some of the biggest and most important airlines and aviation companies of the US and worldwide. From these stocks we chose 10 companies with the highest number of hedge fund investors. 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).
American Airlines Group Inc (NASDAQ:AAL)
Number of Hedge Fund Investors: 43
American Airlines Group Inc (NASDAQ:AAL) shares are taking a hit amid guidance cuts, Boeing-related headwinds and a limited capacity heading into the summer travel season. Last month, American Airlines Group Inc (NASDAQ:AAL) lowered its adjusted profit guidance for the second quarter. American Airlines Group Inc (NASDAQ:AAL) expects the figure to be in the range of $1.00-$1.15, lower than its prior guidance of $1.15-$1.45. Wall Street was expecting American Airlines Group Inc (NASDAQ:AAL) to report Q2 adjusted profit at $1.27. Q2 net operating margin in the period is expected to be between 8.5%-10.5%, compared to its earlier outlook of ~9.5%-11.5%. In the first quarter, American Airlines Group Inc (NASDAQ:AAL) operating expenses jumped 6.9% on a YoY basis despite a decline in fuel prices. This was due to a whopping $586 million increase in salaries, wages, and benefits. Despite this, American Airlines Group Inc (NASDAQ:AAL) bulls believe the stock would rebound as the company’s moat lies in its sheer size and dominance, with nearly 7,000 daily flights across 350 destinations. American Airlines Group Inc (NASDAQ:AAL) cut its debt in the first quarter by $950 million to $41.7 billion.
American Airlines Group Inc (NASDAQ:AAL) is trading at 4.07X its 2025 expected earnings, lower than the sector median of 18. The stock’s EV / EBITDA (FWD) is 5.82, lower than the industry average of 11. Wall Street analysts have a one-year average price target of $15.96 on the stock, which represents a 38% upside potential from the current levels.
Overall, American Airlines Group Inc (NASDAQ:AAL) ranks 1st on Insider Monkey’s list of 10 Best Airline Stocks to Buy For 2024. You can visit 10 Best Airline Stocks to Buy For 2024 to see other stocks in the list. While we acknowledge the potential of American Airlines Group Inc (NASDAQ:AAL), 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 American Airlines Group Inc (NASDAQ:AAL) 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.
