A Fast-Growing Airline Stock

02/11/2013 9:00 am EST

Focus: STOCKS

Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Heritage Corporation

Paul Goodwin of Cabot Wealth Advisory analyzes a veteran airline that is poised to succeed with its attractive combination of value and expansion.

Money flows power market rallies. During the S&P 500’s rise from 667 in March 2009 to above 1,500 today, the Index’s progress has been achieved by attracting money from other investment choices.

During the month of January, for instance, the S&P 500 ran from 1,426 to 1,498. And that leap got its fuel from a net inflow to conventional equity mutual funds to $20.7 billion. This is the largest one-month inflow since the spring of 2000. And if you add in exchange traded products, the number rises to $34.2 billion, the highest total since 1996.
 
The money that is gushing into equities, equity mutual funds, equity ETFs, and equity hedge funds all has to come from somewhere. Lots of it is draining out of bond funds and bond ETFs, as investors’ appetite for risk gradually rises. And plenty is migrating from money market funds and out of bank accounts—even out of Treasuries.

Money is continuing to flow rapidly into equities, and the best thing you can do is put some money into a boat and float along with it. As I’ve said before, bull markets are not so common that you can afford to ignore one.

I have my eye on an airline that has shown years of steady progress and is now pushing out to new highs on good volume.

The company is Copa Holdings (CPA). It’s a Panamanian airline, founded in 1947, that serves much of Central and South America from its hub in Panama City, with connections to the entire world through codeshare agreements with United Airlines.

The company now has 280 daily scheduled flights to 63 cities in 29 countries in the Americas and the Caribbean. Copa is primarily a passenger airline that has been growing quickly as the region’s economy gains momentum.
 
The company grew revenue by 29% in 2011 and has averaged nearly 25% growth so far this year, with a healthy 16.5% after-tax margin in its latest quarter. Another good sign is that the company’s stock pays a handsome dividend; the trailing annual dividend yield is 4%.
 
Copa is increasing the number of routes it serves, taking advantage of favorable load factor trends to strengthen its hold on the Central and South American markets. Its fleet of modern Boeing and Embraer planes is standardized and well-maintained.
 
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