Gotta Show Some LUV

In Monday’s Goldman Guide we discussed playing your favorite names.

Yesterday I wrapped up a family trip with a one-way trip with a connection from Raleigh-Durham through Nashville to Columbus, OH. Given the recent bashing of the airline industry I was expecting the worst, as it has been a while since I have flown. This was the most pleasant experience I have ever had. Flights were on time in every destination and the service was phenomenal.

Who was the airline? The answer is Southwest Airlines (NYSE – LUV - $15.20), of course. Now I am not saying this same experience is everyone’s, but I used to fly a lot more frequently and used Southwest exclusively. I cannot say that I had a bad experience then either.

The Company has stuck to its guns remaining one of the premier commuter or short trip choices serving secondary airports with no frills but over the top friendly service. Additionally, the firm remains innovative in regard to constantly upgrading its high-end utilization software to maximize flight capacity. There are hardly any empty seats on these flights.

From a fundamental analysis perspective LUV also hits the mark regarding our 3-tier recipe for success right now. The stock has entered an accumulation phase with the upcoming holiday season with nearly 6 million shares traded per day on a steady rise over the last three months. Secondly, the technical analysis is very bullish on all time durations related to DMA. Finally, a forecast increase of 15% in EPS from 2013 to 2014 has the FY P/E just under 13, well under the industry average of 20.

With a market cap of $10.7 billion, LUV may be out of our universe somewhat even if the price is right. Buying options for December or January may be an alternative and are very cheap at the $18, $19, and $20 strike prices. Look for a 20-25% pop in the share price by New Year’s.

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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