Investors in the United States looking for the best airline stocks to buy might be disappointed. Some of the best-run airlines are located outside North America and don’t trade on major U.S. stock exchanges.
The NYSE Arca Global Airline Index is a modified equal-dollar weighted index that tracks the price performance of selected local market stocks or ADRs of major U.S. and overseas airlines.
Unfortunately, I haven’t been able to find its constituents. Fortunately, however, I have a backup in the NYSE Arca Airline Index, a collection of 16 airlines in North and South America. The index is down about 5% in 2024 but up about 5% over the past year. Even better news, it is up about 28% from its October 2023 low.
Airlines are expected to be busier this summer than last summer, and passenger traffic does not seem to be slowing anytime soon.
That’s great news if you’re thinking about buying an airline stock. Here are three good ones to get you started.
United Airlines (UAL)
In May 2020, right in the heart of the pandemic, I suggested that investors wait to buy United Airlines (NASDAQ:UAL) stock until it traded in the mid-teens for a margin of safety.
It was trading around $25, down from $90 in early 2020, before Covid-19 started. Warren Buffett had just sold off its airline stocks, sending the shares lower.
“If you’re an extreme risk-taker, I would have said UAL’s a buy in the low $20s. But that was before Buffett sold out. Now, I wouldn’t touch it until the mid-teens. For everyone else, I’d stay away,” I wrote on May 5, 2020.
While the shares fell into the teens, hitting a low of $18.18 that May, they rebounded through the first half of 2021. Except for a run last summer, they haven’t gotten into the $60s and higher where the stock routinely traded before the pandemic.
United is back — up nearly 30% in 2024. In April, the airline reported healthy Q1 2024 results that included $1.5 billion in free cash flow, with much more expected in the remaining three quarters of its fiscal year.
Based on $10 in adjusted earnings per share in 2024, it’s trading at 5.2 times those earnings, which is very reasonable.
Copa Holdings (CPA)
Copa Holdings (NYSE:CPA) was recently recommended in March, when I argued that its 6.53% dividend yield made it an attractive investment. It’s gained a few dollars since, but that’s it.
Despite its mediocre performance in the near term and over the past year — it’s up just about 7.4%, less than one-third of the S&P 500 — it’s got an excellent business connecting North and South America from its base in Panama.
Analysts also like it. Of the 13 that cover it, 12 rate it a Buy, with a $150 target price, 50% higher than where it’s currently trading. In 2024, analysts expect it to earn $16.33 and $18.41. Based on this estimate, it trades at 6.2 times this year’s estimate and 5.5 times its 2025 earnings.
In March, Copa’s capacity, or ASM, which is available seat miles, increased by 12.3% to 2.5 billion, while its system-wide passenger traffic, or RSM, which is revenue passenger miles, increased by 11.5% to $2.16 billion.
Its load factor — defined as the percentage of seating capacity utilized — was down slightly to 86.5%, but still very healthy.
It’s well run. At some point, investors will bite.
Delta Air Lines (DAL)
Delta Air Lines (NYSE:DAL) is my favorite U.S. airline stock for several reasons. I was pleased to see my InvestorPlace colleague Muslim Farooque recently called it one of the most undervalued airline stocks to buy.
Farooque mentioned that the airline is doing an excellent job of adding capacity and filling those seats, leading to solid revenue growth and exemplary EBITDA margins. It is not surprising, given Delta’s strong management team.
I recently recommended DAL stock, suggesting that it is the best U.S. airline stock. With a projected 2024 free cash flow of $3.5 billion and a free cash flow yield of 6.7%, it verges on value territory.
Between CEO Ed Bastian and Alain Bellemare, the airline’s executive vice president hired in 2021, it’s got the talent to keep the airline flying high.
Of the 21 analysts covering DAL stock, 20 rate it a Buy, with a $57.50 target price. That’s about 10% higher than where it’s currently trading. Morgan Stanley analysts raised their target price by $10 to $85 in April, the highest target price of all 21 covering the stock.
The investment bank’s most bullish scenario calls for a $110 share price in the future. That would be something, as it’s never traded above $70.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
