Barring a little turbulence in March (re: bank stock scare), the U.S. stock market has smoothly sailed through 2023. Now that 2024 is around the corner, many investors are eyeing companies with high growth potential, which brings us to airline stocks. The airline business has always moved in sync with the broader economic cycle. When consumer confidence and spending are high, demand for air travel spikes. Anyone who visited Las Vegas or Disney World in early 2009 would agree that when conditions deteriorate, ticket sales plunge. This backdrop has led to this list of best airline stocks.
Right now, airline stocks look particularly well-positioned to benefit from America’s broader recovery from the economic havoc wreaked by the pandemic. The volatility and uncertainty of 2020-21 sent airline stock prices into a nosedive. Yet, with the economy and interest rates on the mend, airlines could soar to new heights, offering investors a chance to buy stocks at discounted values. We’ve identified the best airline stocks that seem ripe to ride this wave to substantial profitability as the industry fully recovers.
Delta Air Lines (DAL)
The first airline stock is from a company that has been traversing the skies for nearly 100 years, Delta Air Lines (NYSE:DAL). Delta Air Lines is an airline giant with domestic and international routes. Founded in 1925 and headquartered in Atlanta, Georgia, Delta operates a large fleet of ~1,250 aircraft. The company has two main business segments: its Airline division provides passenger and cargo air transportation, while its refinery division supplies jet fuel. Delta sells airline tickets directly as well as through various third parties. In addition, Delta Air Lines offers ancillary services like aircraft maintenance and vacation packages.
Delta Air Lines recently announced plans to offer new nonstop flights from Seattle to Taipei starting in June 2024, allowing the company to expand in the Asian market. The new route aims to attract business and leisure travelers while complementing Delta’s existing trans-Pacific network. This makes it one of those best airline stocks.
Delta Air Lines reported solid third-quarter results with $15.5 billion in operating revenue, $2.0 billion in operating income, and earnings per share of $1.72. The airline expects continued momentum next quarter with 9 to 12% revenue growth year-over-year. On the balance sheet, DAL has also lowered its debt level to $19.5 billion in the third quarter on higher revenue and lower costs. Meanwhile, analysts rate the stock a Strong Buy with a high price target of $77, which means over 88% upside potential for investors.
United Airlines Holdings (UAL)
The next airline stock on our list is United Airlines Holdings (NASDAQ:UAL). The airline has been touching the clouds for over five decades since it was founded in 1968. Today, it is headquartered in Chicago, Illinois, with an enterprise value of around $32 billion. Through its owned subsidiary, United Airlines, Inc., the company provides air transportation for passengers and cargo to destinations globally, utilizing a multi-hub system centered around major hubs like Newark, Chicago O’Hare, Denver, Houston, San Francisco, and Washington Dulles.
United Airlines reached new heights in the third quarter with a total revenue of $14.5 billion, up 12.5%, fueled by a 20% surge in premium products. Basic Economy seats also saw a 50% year-over-year increase in revenue. Earnings also increased, with quarterly pre-tax income hitting $1.5 billion and diluted earnings per share reaching $3.65, beating the consensus by 7.35%.
The company also ramped capital expenditures to $1.96 billion, though adjusted net debt ratios still stand at a reasonable 2.5x adjusted EBITDA. If that’s not enough, analysts rate the stock as a Strong Buy with a high target of $98, citing over 130% upside potential from its current levels. Looking at the company’s financial factors, United Airlines seems to be flying in a profitable direction, making it a great candidate for airline stocks to buy.
Copa Holdings (CPA)
The last airline stock on our list is Copa Holdings S.A. (NYSE:CPA). Copa is a Panama City-based airline with a nearly $4.5 billion market cap and has been flying for over 76 years. Through subsidiaries like Copa Airlines and Copa Colombia, the company provides passenger and cargo air transportation to destinations in the Americas and other regions globally within and from Panama and Colombia. CPA offers international flights from the Panama City hub, while Copa Colombia serves domestic and international routes from key Colombian cities.
Copa Holdings third quarter reported a strong net profit of $187.4 million, a 61.6% increase year-over-year. Operating profit soared by 42.7% to $205 million, with operating margin ending at 23.6%. Two drivers of this performance were the 21.3% decrease in fuel costs and lower ex-fuel unit costs. On the other hand, passenger traffic increased by 13.3%, which led to 7.2% higher operating revenues despite a slight drop in yields.
Importantly, Copa exited September with a robust liquidity position, including $1.2 billion in cash and investments. Meanwhile, analysts estimate the stock price to reach a high target of $175 and rate the stock as a Strong Buy, which translates to over 63% upside potential from current prices. These metrics show us that Copa’s finances and service are positioned to soar even higher as headwinds continue easing, making it one of the most attractive airline stocks to buy.
On the date of publication, Rick Orford did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.