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 United Airlines Holdings, Inc. (NASDAQ:UAL) 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 bird’s eye view of a large commercial jetliner taking off from an airport runway.
United Airlines Holdings, Inc. (NASDAQ:UAL)
% of shares shorted: 4.31%
Number of Hedge Fund Holders: 56
One of the Best Airline Stocks To Buy According To Short Sellers is United Airlines Holdings, Inc. (NASDAQ:UAL), which has its headquarters in Chicago, Illinois. Its United Airlines is the second-biggest airline in the world in terms of fleet size. The airline company is a renowned international carrier with a long history of aviation in the Americas, having been founded in April 1926.
The company manages over 4,500 daily flights to 339 airports on five continents through its subsidiaries United Express and United Airlines.
The extensive route network and hub structure of the Chicago-based airline company are evidence of its strategic stance within the airline industry. Even with a strong loyalty program and strategic partnerships, United still has to contend with fierce competition and volatile fuel prices.
The UAL stock has experienced moderate growth since 2021. The stock has lagged behind the overall market in 2022 and 2023, with falls in both years and a minor gain in 2023.
Nonetheless, strong demand for overseas travel was the primary driver of United Airlines’ impressive second-quarter 2024 profit, which increased by more than 20% YoY.
However, with excessive demand for flights starting to put pressure on pricing, the airline company’s third-quarter outlook fell short of projections. Compared to analysts’ forecasts of $3.44 per share, United now expects to earn between $2.75 and $3.25 per share in the current quarter.
Notwithstanding the difficulties, UAL has profited from its emphasis on foreign markets, where demand is still strong after the pandemic. The company increased the number of premium tickets it offered, and its revenue from these seats increased by more than 8% YoY. Nonetheless, a minor drop in unit revenues has resulted from increasing domestic capacity, which is indicative of the industry’s general battle with surplus capacity.
Scott Kirby, the CEO of United, observed that airlines are starting to reduce their itineraries and that they anticipate a major shift in mid-August. United stuck to its $9 to $11 per share full-year profit target, and it is still confident in its strategic direction.
United Airlines Holdings, Inc. (NASDAQ:UAL) strong market position has led analysts to award the company a “Strong Buy” recommendation. There are 13 analysts who have collectively rated the stock as a “buy.” The average price objective indicates a possible gain of 68.01% from the current stock price of $43.32.
Overall UAL ranks 3rd on our list of the best airline stocks to buy according to short sellers. While we acknowledge the potential of UAL 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 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.