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 United Airlines Holdings, Inc. (NASDAQ:UAL) stands against the other very cheap stocks 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.)
A bird’s eye view of a large commercial jetliner taking off from an airport runway.
United Airlines Holdings, Inc. (NASDAQ:UAL)
Number of Hedge Fund Holders: 46
PE Ratio as of August 1: 4.81
United Airlines Holdings Inc (NASDAQ:UAL) is one of the best very cheap stocks to buy, according to hedge funds. United Airlines Holdings, Inc. and its subsidiaries provide air transportation services throughout North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. The company uses its mainline and regional fleets to move both passengers and freight. In addition, it provides third-party maintenance, flying training, catering, and ground-handling services.
A total of 46 hedge funds tracked by Insider Monkey reported owning stakes in United Airlines Holdings Inc (NASDAQ:UAL) as of the end of the first quarter. The company’s largest stakeholder, Frank Fu’s CaaS Capital, has 10,200 shares, valued at $496,332.
Comparing UAL’s PE ratio of 4.81 to the industry average of 12.93, it seems cheap. This implies that, in relation to its earnings, which are on the rise, UAL can be a cheap investment.
Recently, United Airlines (NASDAQ:UAL) released its Q2 2024 earnings, which showed slightly lower sales and higher earnings than expected. The firm disclosed sales of $14.99 billion and adjusted earnings of $4.14 per share, against projections of $15.15 billion and $3.99, respectively.
UAL’s stock price decreased by over 72% in 2020 due to the pandemic, when travel demand was essentially zero. In early January 2021, UAL stock was trading at $45; it has since increased to $48. This is compared to a 45% growth in the S&P 500 during the same period. UAL’s stock returns for the years 2021, 2022, and 2023 were 1%, -14%, and 9%, respectively, behind the returns of the S&P 500, which were 27%, -19%, and 24%. At $15 billion, Q2 revenue increased by 5.7% compared to the same quarter last year. Available seat miles increased by 8.3% for the airline, while passenger revenue per available seat mile decreased by 2.9%. As of Q2 FY23, the adjusted pre-tax margin was 15.3%; however, it is now 12.1%. After rising to $5.03 in Q2 FY23, adjusted EPS fell to $4.14.
According to UAL, the average gasoline price per gallon increased by 3.8% over the past year. The company projects adjusted EPS for Q3 2024 to be between $2.75 and $3.25, with a range of $9 to $11 for the entire year 2024. However, Q3 2024 forecasts fall short of the $3.44 average consensus expectation.
Reiterating its full-year expectations has helped UAL shares, which increased 8% in just one week, despite the company’s poor Q2 earnings and dismal Q3 guidance.
ClearBridge Value Equity Strategy stated the following regarding United Airlines Holdings, Inc. (NASDAQ:UAL) in its fourth quarter 2023 investor letter:
Our industrials stocks faced headwinds early in the quarter due to fears of a recession, which weighed on some of our more cyclical industrials such as United Airlines Holdings, Inc. (NASDAQ:UAL). Additionally, the Fed’s pivot and the prospect of rate cuts in 2024 helped fuel a rally in lower-quality industrials that we did not hold, further dampening the performance of our high-quality holdings.
Analysts have a mixed view of UAL, citing the uncertain macroeconomic climate, high oil costs, and high interest rates. Nonetheless, the 13 analysts have given the stock a “strong buy” rating with a $72.78 average price target on the stock and an upside potential of 71.73% from the current stock price of $42.38. This means that most of the analysts believe this stock is likely to perform very well in the near future and significantly outperform the market.
Strong Q2 2024 results and reaffirmed full-year expectations for United Airlines position the airline well for development in the future. Though the results have been inconsistent, the stock seems cheap and has a large upside potential.
Overall UAL ranks 7th 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 UAL 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 UAL 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.