This year provides the latest evidence for an old joke about investing in airlines. When Virgin Group co-founder and British business tycoon Richard Branson was asked how to become a millionaire, he quipped: “It’s really nothing. Become a billionaire first, then buy a hotel.” Airlines. To prove the point, many airline stocks have fallen since the start of the year amid discounted seats, safety concerns that grounded planes and global technology disruptions that canceled thousands of flights last month. The Global Jets ETF, whose largest holdings are Southwest Airlines, United Airlines, American Airlines and Delta Air Lines, has fallen 7.5% since the end of June. The iShares U.S. Transportation ETF (IYT) 2024, which consists of domestic airlines, railroads and truckers, has lost 7.5% of its value since the end of June. It fell about 2%, while the S&P 500 has gained 14.2% this year. But investors are more optimistic about the supplier side of the industry, and they suspect that manufacturers, especially the aftermarket business, may gain from Boeing and Airbus. Boeing’s multi-year backlog of commercial aircraft orders was worth $437 billion, equivalent to more than 5,400 aircraft, as of July, getting a boost from a backlog of aircraft deliveries that has forced airlines to optimize the use of existing fleets. “We like the current set-up of the aerospace and defense market, particularly the aftermarket,” said John Belton, chief executive of the company. “There is an interesting longer-term backdrop, with travel demand and air cargo demand being strong and even accelerating in some cases. ” At the same time, “deliveries of new aircraft have been slow and suspended for various reasons, resulting in airlines and air cargo companies having to make better use of their existing fleets. ” As a result, aerospace “is an interesting industry with unique cycles that are currently strong and should continue for the foreseeable future,” Belton said. What’s more, these investors say the future of commercial aerospace is bright as travel demand returns to pre-pandemic levels and growth in global travel provides a long-term tailwind. The International Air Transport Association (IATA), the airline industry association, said that full-year passenger traffic in 2023 will reach 94.1% of 2019 levels. With all that said, here are some stocks that could benefit. AAR Corp., a $2.3 billion small-cap company that provides aftermarket parts to the commercial aerospace industry, will benefit from the retooling cycles of Boeing and Airbus, said Nicholas Galluccio, portfolio manager at Teton Advisors. Shares were up just 1.3% this year through Thursday, but Galluccio said AAR is a high-quality asset that can generate significant free cash flow. The stock was the fourth-largest holding in Teton Westwood SmallCap Equity Fund (WEESCX) as of March, accounting for 2.6% of the portfolio, according to Morningstar data. The fund has total assets of $81 million and an expense ratio of 1.250%. “It’s harder to get new airplanes now because of all the regulations now, plus the problems Boeing is having, so the older airplanes are flying longer and require more maintenance,” Galluccio said. “AAR Benefiting from all maintenance requirements and refurbishments, and essentially meeting the specifications of many aging aircraft being flown, the stock is also a consensus Buy on Wall Street. According to the London Stock Exchange, of the six analysts covering the stock, four have buy ratings and two have strong buy ratings. GE Aviation is purely playing a role in the rise of global air travel, said John Belton, portfolio manager at Gabelli Funds. The aerospace stock, which began trading independently on the New York Stock Exchange in April, has soared 67% this year after GE spun off into three separate companies. Belton said GE Aerospace is a “long-term compound” with plenty of upside, with its shares climbing to $200 a year from Thursday’s $169.75. He is not alone. Nearly all of the 18 analysts surveyed by London Stock Exchange Group (LSEG) think GE Aerospace is a buy, with five giving it a strong buy rating. At the heart of GE Aviation’s investment thesis is its market leadership. Belton said GE Aerospace, which sells commercial engines to Boeing and Airbus, has 30 to 40 years to service the engines and their owners. The aerospace company has installed about 70,000 commercial and defense engines, accounting for about 70% of its recurring revenue. Belton said GE’s revenue model is “based on service hours and aircraft.” “Airlines will come and go, and airline competition cycles will rise and fall, but as long as there is demand for travel, there will be airline business there.” Belton said: “As long as that is the case, they will generally be would use GE’s engines and be heavily incentivized to keep those engines running as long and as often as possible,” according to Morningstar, which owns Gabelli Growth Fund (GABGX), a large-cap growth stock. The fund has a return of 22% this year. Belton said GE Aerospace also holds Gabelli Global Growth Fund (GICPX) and Gabelli Growth Innovators ETF (GGRW) funds. Elsewhere at Boeing, Gabelli Funds portfolio manager Tony Bancroft said he was particularly bullish on Boeing after the company suffered a sell-off this year. Shares of the maker of the 737 Max airliner could fall nearly 32% in 2024, but Bancroft said it represents a “huge opportunity” for investors. “In the short term, there’s probably going to still be a lot of volatility until we (the Federal Aviation Administration) lift that cap and they start really building jets on a quality basis,” Bancroft said. “But That day will come, and I think they’ll do well going forward.” Bancroft runs the Gabelli Commercial Aerospace & Defense ETF (GCAD), an actively managed ETF that’s up 20% this year. Boeing is one of the largest holdings. Other companies in the same industry include Heico Corporation, Triumph Group and TransDigm Group. To be sure, risks to the air travel business include its sensitivity to economic cycles, as well as external risks such as war in Eastern Europe and the Middle East. Any hit to the supply chain could also impact after-sales operations. Still, investors believe people’s enthusiasm for travel and desire to make their own bucket lists has not diminished. “Air travel is a growth industry,” Galluccio said. “And it will continue to grow over time.”
ABOUT US
Our news website delivers comprehensive coverage on US news, economy, politics, and world events, ensuring you stay informed on the latest developments. We provide timely and accurate news to keep you updated on the most important stories. Stay connected with us for in-depth analysis and breaking news from around the globe.
Contact us: contact@realtimeheadlines.com
© Real Times Headlines - 2024 | All Rights Reserved