Holidays are Time to Show LUV

Written by GSCR Staff   
Tuesday, 02 December 2014 08:08

In yesterday’s Guide we discussed one of the many benefits of the price decline in oil, including lower costs for airline travel and improved margins for airlines.

Let’s all be totally honest, flying sucks these days. The extra security and cramped quarters due to a population increasing in size can make a 1-hour flight from NY to Chicago turn into an excruciating all day affair if there is bad weather or other delays. One airline really gets this!

 

Back in October 2013 we featured Southwest Airlines Company (NYSE – LUV - $40.50) at a $15.20 price point in the Market Monitor. That’s over 166% for the fourteen month period. We may not LUV flying, but we LUV making money!

 

Southwest is the epitome of a Warren Buffett type Company/stock. The no frills flying coupled with a reputation for excellent customer service makes flying the airline more bearable than most. If a long term downturn in oil prices persists than this is one to keep in the portfolio.

 

On the technical side the 200-day EMA is very bullish. Additionally, the ‘short float’ is under 3.00%. On the valuation side the forward P/E is 15 compared to the trailing of 24 with a 5-year PEG ratio 0f 0.5. This is a great value story.

 

Southwest Airlines initiated its international service in July 2014 with flights to Aruba, Bahamas and Jamaica in the Caribbean and plans to expand its international operations to 50 international destinations with Mexico and Dominican Republic next. What this expansion will bring remains to be seen, but this appears to be a positive move for the Company.

 

LUV is a solid play on declining oil prices. Look for the stock to hit the $48 sometime in the early second quarter next year.

 

Have a great day!

 

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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