Flying Favorites

09/07/2015 7:00 am EST


Chris Versace

Editor, PowerTrend Bulletin, Growth & Dividend Report, and PowerTrader

As my recent travels suggest, the strong dollar is benefitting US consumers heading abroad and international travel is favorable for airline companies given the higher price points, observes Chris Versace, editor of Growth & Dividend Report.

Commodity prices look awful and we have to remember those prices are a function of supply and demand. Remember, however, low oil prices are a positive for the airlines.

Of course, if we compare the decline in oil with a stronger US dollar, one conclusion that we can draw is that US consumers are likely to take advantage of the exchange rate and travel to Europe.

I saw that in spades when I went to London recently. Now we add in the recent drop in fuel prices, a key cost component for airlines, and it bodes well for their margins and earnings.

When we look at all the airlines, one with the greatest number of international routes is American Airlines (AAL).

Moreover, despite the slide in oil prices since early July, earnings expectations for American have only budged modestly in recent days.

In terms of downside, AAL shares are well off their 52-week high, which equates to modest downside risk from current levels.

Factor in flight rationalization that has led to higher fares at a time of falling input costs and it leads to a price target of $55 or just 6.4x expected 2015 earnings.

Lower oil prices means that American Airline’s cost structure will only get better.

Meanwhile, there we see one opportunity to invest in a number of different airlines; earlier this year, US Global Jets ETF (JETS) was launched.

As you probably suspect from its name, this exchange traded fund offers a basket approach to owning US airlines' stocks.

Holdings include Southwest Airlines (LUV), Delta (DAL), United Continental (UAL), JetBlue (JBLU), and more than 25 others, including American Airlines.

As we add JETS shares to your holdings, I have to point out that it is one of the more thinly traded ETFs that we have owned. Therefore, be sure to set a protective stop loss at $20.

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