Growth Guru Eyes Cars and Planes

11/05/2015 9:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

In his latest Cabot Top Ten Trader, growth stock expert Mike Cintolo sees upside opportunities in two transportation stocks, an automaker and an airline.

No one is going to call General Motors (GM) a great growth company, but after years of losing market share and mismanagement, the new GM is making hay thanks to a healthy industry, cost controls, better products, and a shareholder-friendly management.

While company’s third-quarter report wasn’t amazing, business and profitability in North America drove a huge bottom-line beat ($1.50 per share vs. $1.10 expected).

Moreover, management sees these elevated earnings levels continuing for the next few quarters; analysts see earnings up another 14% next year to north of $5 per share.

The big idea here is that the earnings power of the company is in a different ballpark compared to a few years ago, so even if things slow a bit, the company should crank out great results.

And management is rewarding shareholders with those profits; through mid-October, the company has bought back 86 million shares and pays a generous dividend of 36 cents per share, per quarter for a 4% annual yield.

Combine that with a dirt-cheap P/E ratio of 7 and there’s room on the upside as long as the overall environment remains bullish.

Meanwhile, as oil prices have backed off again after a brief rally (keeping fuel costs low), many airline stocks have regained their strength.

Delta Airlines (DAL), of course, is one of the big boys in the industry and is benefiting in a big way from the sector’s boom times.

Interestingly, though, while many leading players in the sector are boosting capacity during this low-cost environment, Delta is expressly doing the opposite.

With an industry-leading load factor for first class seats, the company is focusing on getting revenue per seat back up. As a result, cost declines are falling right to the bottom line.

In the third quarter, revenues were down a tick (would have been up a couple of % without currency movements), but earnings surged 45% and management said it expects another good quarter in Q4.

Moreover, Delta is one of the few big airline operators that analysts see continuing to boost earnings in 2016 (up 23% to nearly $6 per share).

Obviously, any sustained rally in oil prices could sour sentiment for the group, but for now, the wind remains at the company’s back.

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