JetBlue: Standout in Strong Group

09/16/2014 7:00 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

Looking for top-ranked stocks from top-ranked industry groups is a strategy with intuitive appeal. It’s also one with a history of working, especially if you look beyond share-price momentum, explains Richard Moroney, editor of Upside Stocks.

When shopping among standouts in our Quadrix rating system, we pay extra attention to those from high-scoring industry groups. When industry peers also score well, it suggests a stock’s high scores reflect fundamental trends rather than statistical noise. That is especially true when an industry scores well in several Quadrix categories.

Along these lines, we looked for groups that delivered sales and earnings growth in the June quarter, with better-than-expected profits prompting positive revisions for estimated current-year and next-year earnings.

Finally, we insisted on reasonable valuations, looking for groups that trade at a discount to the average S&P 1500 stock based on forward price/earnings ratios.

One standout group is airlines, which ranked the highest based on this screen. And within this group, we have a Best Buy rating on JetBlue Airways (JBLU).

The stock has soared 16% since Upside initiated coverage on July 31, reflecting solid June-quarter results and healthy industry trends. For July, the low-cost airline reported a solid traffic gain of 4.3% on capacity growth of 3.5%, as revenue per available seat mile rose 1%.

 The airline industry is benefiting from strong demand, partly reflecting an improved economy. Favorable fuel prices and improved cost controls should help sustain rising profit margins.

Looking ahead, JetBlue could benefit if it makes operational changes, including adding seats to aircraft, charging a fee for passengers’ first checked bag, and revamping its fare structure.

For 2014, per-share earnings are expected to jump 31% to $0.68. Revenue is expected to climb 8% to $5.9 billion. JetBlue, with an Overall score of 98 and Value score of 74, is a Best Buy.

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