Buy Airline Stocks or the JETS ETF Amid Record Holiday Travel?

Airlines joined in on the rally that many retail stocks have been seeing amid what is expected to be a record holiday shopping season. It turns out that air travel is also seeing peaks with the Transportation Security Administration (TSA) screening over 3.1 million travelers in a single day record on the Sunday after Thanksgiving (Nov.30), which was the busiest business day in its 23-year history. 

Notably, with air travel reaching new peaks last year and even exceeding pre-pandemic levels, this Thanksgiving brought in a 2% year-over-year uptick in flight bookings, with air travel reservations around Christmas up 1% so far.

Delta & United Lead the Spike in Major Airline Stocks

Shaking off disruption fears following the government shutdown, it’s not surprising that Delta DAL and United UAL are leading the surge in the major airline stocks. As two of the most efficient carriers, the recent momentum in Delta and United stock is intriguing for investors seeking companies with robust financial figures near a 10X earnings multiple.

Although the value alert is starting to go off, EPS revisions for Delta and United have been foggy in the last two months, but flight disruptions during the shutdown didn’t cause a substantial decline in their outlook. United may be the crème of the crop, but Delta’s proficiency is among the top of the pack as well, and building gradual positions may be easier to obtain for investors looking for an industry leader with DAL trading under $70 a share and UAL at over $100.

For now, Delta and United stock both land a Zacks Rank #3 (Hold).

Buy-Rated Airline Stocks

SkyWest SKYW and LATAM Airlines Group LTM still stand out as the only airliners to obtain a buy rating with a Zacks Rank #2 (Buy), respectively. Magnifying their appealing growth prospects has been a pleasant trend of positive EPS revisions over the last 60 days, with both carriers being minimally impacted by previous flight disruptions during the government shutdown.

SkyWest was less affected because much of its business is tied to essential rural air service programs and long-term contracts with major airlines, which continued to operate despite federal funding disruptions. Furthermore, the U.S. government acted quickly to prevent a funding lapse in the $600 million Essential Air Service program, which subsidizes flights to rural communities that SkyWest serves as a regional carrier in the Midwestern and Western United States.

Meanwhile, LATAM has been a notable outperformer among foreign airliners as the leading airline in Latin America, headquartered in Chile and having hubs in Brazil, Peru, Colombia, and Ecuador with regional flights and long-haul operations.  

U.S. Global Jets ETF

One of the most popular transportation sector ETFs, the U.S. Global Jets ETF JETS offers exposure to the major airline stocks and currently lands a Zacks Rank #3 (Hold). With an inception date dating back to 2015, JETS is up a modest +7% year to date, and is trading at a 52-week high of $27.

The fund's top holdings include Southwest LUV, American AAL, Delta, and United Airlines, with each accounting for more than 10% of its composition. SkyWest and LATAM are also a part of the holdings at 2.77% and 0.49%, respectively.

Bottom Line

Despite the Jets ETF being able to retain a favorable rating, it's noteworthy that the Zacks Transportation-Airline Industry is currently in the bottom 40% of over 240 Zacks industries. The recent momentum in the space is appealing, and the Jets ETF may benefit from some of the outperformers, but investors will still want to monitor which airliners are pushing past any operational setbacks they faced during the government shutdown when it comes to individual stock picking. That said, recent news of the busiest air travel day in U.S. history is a very positive sign going forward.

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This article originally published on Zacks Investment Research (zacks.com).

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