3 Airline Stocks That Could Hit Turbulence

UAL, ALK, and DAL stocks tend to struggle in April and the second quarter

Mar 28, 2018 at 1:34 PM
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U.S. stocks are about to wrap up a brutal quarter -- the S&P 500 Index's (SPX) worst since mid-2015, which was the index's last negative quarter, in fact. What's more, a handful of airline stocks could hit even more turbulence in the short term, if recent history is any indicator. While United Continental Holdings Inc (NYSE:UAL) and Alaska Air Group, Inc. (NYSE:ALK) are among the worst stocks to own in April, historically, the shares of Delta Air Lines, Inc. (NYSE:DAL) tend to struggle in the second quarter.

Yesterday, we outlined the best stocks to buy before April. Below are the 25 worst S&P stocks to own in April, looking back 10 years (and excluding stocks without at least eight returns). The data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White.

worst stocks april

UAL Stock Averages the Worst April Loss

United Continental stock has racked up the biggest percentage loss, on average, dropping 5.21%. Further, the shares have ended the month of April higher just 40% of the time over the past decade.

It's been a rocky 2018 for UAL stock, which has explored a range of nearly 19 points. The security touched a six-month high of $79 in mid-January, but fell as low as $60.44 in February, due to a post-earnings bear gap and the broader stock market correction. At last check, UAL was near the middle of that range, trading at $68.45. Another 5.21% drop from current levels would put the airline stock around $64.88.

A rough April could spook a few near-term options bulls, too. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.61 is in just the 16th percentile of its annual range, implying that short-term traders are more call-heavy than usual right now. In the front-month April series, the overhead 70-strike call is home to peak open interest, and this could translate into an added layer of round-number resistance in the near term.

Further, another drop next month could rattle the analyst crowd. United Continental shares boast seven "strong buy" endorsements, compared to eight "hold" ratings and not a single "sell." Plus, the average 12-month price target of $82.56 represents a steep premium of more than 20% to UAL's current price. A round of downgrades or price-target cuts could weigh on the shares.

ALK Stock Could Test New Lows

Alaska Air stock also sports a win rate of just 40% in April, looking back 10 years. The shares have averaged a monthly loss of 2.42%. However, ALK is no stranger to downside momentum, having been in a channel of lower highs since peaking just under $100 in February 2017. More recently, the stock has been testing support in the $61-$62 region in 2018, and was last seen trading at $61.65. Another 2.42% dip would put ALK shares around $60.22 -- within a chip-shot of new annual lows.

The airline's near-term options traders are also more call-biased than usual, as evidenced by ALK's SOIR of 0.64 -- in the 15th annual percentile. In fact, options buyers have been upping the bullish ante lately. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), its 10-day call/put volume ratio of 5.18 is in the 89th percentile of its 12-month range, pointing to accelerated call buying over put buying during the past two weeks.

Further, half of the analysts following Alaska Air still consider the stock a "buy" or better, and the average 12-month price target of $79 is nearly 28% north of ALK's current price. An unwinding of optimism in the options pits, or a round of negative analyst notes, could drag the shares even lower, should they extend their long-term downtrend.

DAL Among Worst Stocks for Second Quarter

Finally, Delta Air Lines stock is among the worst to own in the second quarter, historically. The equity has finished the quarter higher just 40% of the time over the past 10 years, averaging a loss of 1.63%.

worst stocks 2Q

DAL shares notched a record high of $60.79 in mid-January, but later in the month gapped lower amid fears of an airlines pricing war. However, the stock ultimately found support atop its 320-day moving average, and was last seen trading at $54.39.

Short sellers have been piling on Delta stock at a rapid-fire rate, with short interest surging more than 40% in the past two reporting periods. However, some of these bears could be picking up options insurance with out-of-the-money calls. DAL's 10-day ISE/CBOE/PHLX call/put volume ratio of 3.66 is in the 83rd percentile of its annual range.

Should Delta stock retreat in the short term, it too could be at risk for analyst backlash. All 13 of the brokerage firms following DAL maintain "buy" or better opinions, and the average 12-month price target of $72.65 represents a premium of nearly 34% to the equity's current price, and stands in uncharted territory for the shares.


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