2 Airline Stocks That Could Continue to Soar

United Continental Holdings Inc (UAL) and Southwest Airlines Co (LUV) could stand to benefit from analyst uogrades

Kirra Fedyszyn
Feb 15, 2017 at 3:26 PM
facebook twitter linkedin


President Donald Trump's tax plans are in focus at the moment, with expectations for an upcoming announcement keeping the broad-market stock rally alive. Among the sectors that could stand to benefit from cuts to corporate interest rates is airlines. Not to mention, the sector is climbing today on news that billionaire investor Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRK.A) increased its exposure to airlines.

According to our internal Sector Scorecard, "Aerospace/Airlines" stocks have seen healthy returns lately. Specifically, according to data from Schaeffer's Senior Quantitative Analyst Rocky White, 78% of the 23 tickers we track in the sector are seated above their 80-day moving averages. Plus, these stocks have seen an average year-over-year return of nearly 31%. Below, we'll take a look at two stocks that could have room to run: United Continental Holdings Inc (NYSE:UAL) and Southwest Airlines Co (NYSE:LUV).

United Continental Presents an Options-Buying Bargain

At $75.82, up 2.8% today on Buffett's increased stake, UAL is sitting just shy of its December record high, and has more than doubled from last June's multi-year low. The shares seem to have overcome recent resistance in the $75 - $75.50 region, and could be set to tap higher highs. After all, nearly half of tracking analysts call the stock a lukewarm "hold," leaving room for future upgrades. Plus, short interest shot up by over 43% during the last two reporting periods, indicating there's buying power waiting on the sidelines.

Options traders have been unusually pessimistic as UAL flirts with fresh highs, as well. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio of 0.89 ranks higher than 81% of the past year's readings. Notably, it could be a prime time to pick up United Continental Holdings Inc options. With a Schaeffer's Volatility Index (SVI) of 30% -- in the low 8th annual percentile -- UAL's near-term options are pricing in muted volatility expectations right now. Plus, a Schaeffer's Volatility Scorecard (SVS) of 96 indicates the options market has seriously underpriced UAL's ability to make big moves over the past 12 months.

Buffett's Fresh Position Sends Southwest to New Highs

Warren Buffett has taken a brand new stake in LUV, picking up 43.2 million shares, according to Tuesday's SEC filing. Today the stock is up 3.8% at $57.42, after earlier hitting a new all-time high of $58.06. That doesn't mean the shares are out of steam, though. LUV has added nearly 55% year-over-year, and has found an ally in its 10-day moving average during its most recent leg higher. Still, six analysts rate the shares a tepid "hold," meaning upgrades could lie ahead.

LUV has seen an unusual preference for puts in recent months as well, per its 10-week ISE/CBOE/PHLX put/call volume ratio of 0.82 -- in the top quartile of the past year's readings. And like its peer above, Southwest Airlines Co is offering up an attractive opportunity for short-term options buyers. The security's SVI of 24% rests below 90% of all comparable readings from the last 52 weeks, while its SVS is docked at a healthy 84.

Don't miss Schaeffer's free weekly stock market forecast. Sign up now for Monday Morning Outlook.

A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter