Chart of the Day – $DAL : Potential Long-Term Breakout?

Airlines stocks are known as the kiss of death in the investment industry.  Warren Buffett even famously commented that it’s the one industry he wouldn’t touch again.  Airlines are notoriously volatile businesses that have lost more money for shareholders than any other long-standing American industry over the last 75 years.

However, I couldn’t help but notice how cheaply airlines stocks are priced today.  In a market where value is hard to find, the major American airlines stocks are priced at levels that seem to discount a lot of bad news and distrust of the industry as a whole.

For example, Delta’s P/E over the past 2.5 years has fluctuated between 4.5 and 12, and currently is priced around 8:

Trailing P/E of DAL, Courtesy of Bloomberg

Trailing P/E of DAL, Courtesy of Bloomberg

 

So just a simple look at the cheap valuation might not be sufficient.  But analyst consensus projections for 2013 earnings are at 2.61, and for 2014, they’re at 2.93.  In which case, the current stock price of $14.60 is surely too low.

The market obviously doesn’t trust those consensus projections, but I think the airlines industry is in much better shape than it’s been at any point in the last decade.  Consolidation continues apace (American and U.S. Air are likely to merge next), and airlines have found new revenue streams throughout the past 3 years (as annoying as all those charges have been to customers, they’ve stuck and become the norm in the industry).

Finally, Delta’s chart shows a stock up against long-term resistance:

5 year weekly chart of DAL, Courtesy of Bloomberg

5 year weekly chart of DAL, Courtesy of Bloomberg

 

The $15 level is important resistance.  However, based on its low valuation and better growth prospects, I think the stock is likely to finally break that resistance and make new highs over the next 6 months.  I am afraid to say it, but that might mean it should be shouted from the rooftops – DAL and the airlines stocks more generally are long-term buys.