✈️ Is Delta the Air Travel Alpha?

Plus, is notalgia bubbling, and can a logo reshape a drink's future?

October 09, 2024

Happy Wednesday afternoon to everyone on The Street. Here's a snapshot of where markets ended the trading session, plus tomorrow's trade idea delivered to you today.

  • 🟩 | US stocks rose on Wednesday, driven by tech gains, while investors brushed off geopolitical concerns. The S&P 500 hit a record, rising 0.7%, the Nasdaq added 0.6%, and the Dow gained 1%.

  • 📈 | One Notable Gainer: Astera Labs shares jumped 15.6% after launching new AI-focused data center fabric switches.

  • 📉 | One Notable Decliner: Bayer shares fell 6.9% as the Washington Supreme Court agreed to review a case alleging harm from Monsanto products at Sky Valley Education Center.

  • ✈️ | Tomorrow's Trade: Is Delta the Air Travel Alpha? Scroll down for more.

Plus, today’s sponsor is outlining how to build the ultimate dividend portfolio.

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S&P 500 Heatmap. Credit: Finviz

All Stock Heatmap. Credit: Finviz

Global ADR snapshot. Credit: Finviz

MARKET MOVERS

NCLH (+10.9%) NCLH stock sails to 52-week high of $21.79 amid industry rebound (Investing.com)

ALTM (+31.1%) Rio Tinto goes all in on lithium with $6.7 billion Arcadium buy (Reuters)

GTLB (+7.7%) GitLab’s Stock (GTLB) Gains Bullish Initiation of Coverage From Morgan Stanley (AskTraders)

HELE (+17.9%) Helen of Troy beats Q2 expectations, shares rise on solid outlook (Investing.com)

CHWY (+3.2%) Chewy Shares Gap Up - What's Next? (MarketBeat)

OVERHEARD ON THE STREET

QZ: McDonald's is suing Tyson Foods, JBS, Cargill, and National Beef for colluding to limit beef supplies, aiming to reshape the meat industry.

CNN: Mountain Dew is reintroducing "mountain" to its logo with a new rustic design, set to roll out next May, amid declining demand and a 7% drop in 2024 sales.

CNBC: Boeing withdrew its contract offer after negotiations with the machinist union collapsed, leading to a strike by over 32,000 workers.

Honda: Honda recalls 2 million cars and SUVs in North America from 2022-2025 models due to steering issues that raise crash risks.

CNBC: Disneyland is raising ticket prices for high-demand days, increasing most by $7 to $12, while base tickets stay at $104.

TOMORROW’S TRADE IDEA, TODAY

Is Delta the Air Travel Alpha?

Flying Under the Radar

Thanks to pent-up post-pandemic demand, air travel has soared to record highs. But despite packed airports and planes, investors still seem hesitant to invest in airlines.

That might just be a mistake. The airline industry as a whole is projected to see a high EPS compound annual growth rate over the next two years, with long-term growth expected for a few big-name airlines through 2026, per a MarketWatch analysis.

None stand out as much as Delta (DAL). The analysis suggests the sky might be the limit for the mega-carrier — and investors may be able to gain exposure on the runway.

Trading at a Discount

The S&P 1500 Composite Airline group is currently trading at a forward P/E much lower than the overall S&P 500 broad market index. On the whole, the current prices of airline stocks are at a discount to their 10-year average, but their projected revenue and earnings growth are positive. 

Delta is far and away the leading airline in the S&P 500 in terms of gross profit efficiency, which the analysis says could point to higher profitability down the road.

Strong Long-Term Outlook

The US Global Jets ETF, which aims to track the global passenger air travel industry, holds 51 airline stocks. Of those stocks, 20 have FactSet consensus estimates for total revenue and operating expenses per available seat kilometer (ASK) through 2026. 

In addition to its top-of-class P/E, Delta leads the pack in terms of gross profit per ASK. But this doesn’t seem to have registered with investors yet. The analysis examined one final metric: analyst ratings and consensus price targets for the basket of carriers.

With 91% Buy ratings and an implied 12-month upside potential of more than 20%, Delta topped the list there, too.

Are you bullish or bearish on Delta Air Lines (DAL) over the next 12 months?

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ON OUR RADAR

Reuters: Over 97,000 in Georgia and North Carolina remain without power after Hurricane Helene, as Florida braces for Hurricane Milton to hit Wednesday night.

WSJ: Job switching can reduce 401(k) contributions by up to $300,000, risking long-term retirement security, according to a study from Vanguard.

NPR: Nearly 40% of Americans aged 18-64 have used generative AI, signaling a potential productivity boost, but its economic benefits remain debated.

AP: Melinda French Gates will grant $250M to global women’s health groups through an open call, marking a shift in her philanthropic focus.

Axios: Longshoremen won a 61.5% pay raise but seek automation protections, highlighting concerns over job security and fair compensation amid rising inequality.

FRIDAY’S POLL RESULTS

🟨🟨🟨⬜️⬜️⬜️ General Motors (GM)

🟩🟩🟩🟩🟩🟩 Pfizer (PFE)

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