An airline and railroad inventory have potential as transportation reports profits, traders say
The revenues from the transportation could provide insight into two different corners of the economic recovery.
On the consumer side, reports from Southwest, Alaska Air, Spirit and American Airlines will add color to travel, while railroad companies CSX and Union Pacific will provide an update on cargo loads and manufacturing space.
United Airlines, which reported Monday after the bell, posted a fifth consecutive quarterly loss and missed analysts’ revenue estimates. The company offered a more positive outlook, saying it was “encouraged by strong signs of pent-up demand for air travel”.
Nancy Tengler, chief investment officer at Laffer Tengler Investments, is keeping an eye on another airline reporting profits this week.
“If you look at a stock like Southwest Airlines, which reported Thursday, they have a lot more recreational space and a lot more exposure domestically,” Tengler told CNBC’s Trading Nation on Monday. “Our work on relative value for money shows that this stock is only in the middle of its recovery.”
FactSet estimates the company is expected to post a net loss of $ 1.85 per share for the quarter ended March, a loss of less than 15 cents per share last year. The outlook for the full year looks sunnier – it is expected to post losses of $ 1.98 per share in 2021, which is less than $ 6.22 in 2020.
Tengler says the airline should weather rising energy bills too, noting that its management team has a “very strong history of hedging oil bills.”
“While we are concerned about rising oil costs, their hedging program starts at around $ 65 a barrel and then $ 80 and they make some money off of the hedge,” Tengler said. “This is where you want to stay when you’re in the stock and when the profits you want to get in are selling.”
West Texas Intermediate Crude Oil was trading at $ 64 a barrel on Tuesday.
Ari Wald, head of technical analysis at Oppenheimer, is optimistic about the entire transport group. He sees more upside due to the bullish outlook for the cyclical space. He points to a graph showing the three-year rate of change for the Dow Transports.
“”[It is] curled up from its best-selling state for a decade. Now the value is around 40%, but we can see for the past 40 years that it is closer to 100%. So it is that this is an early to medium cycle bull market which is more beneficial for the transports. “Said Wald in the same interview.
According to Wald, CSX is a good example of a transport inventory set up for more profit.
“”[It] broke out in the fourth quarter, it was part of that big breakout in the cyclical areas of the market. It has been fluctuating since then, and more recently has been moving back above its January peak. We believe this means a resumption of the larger outbreak, “he said.
CSX, reporting after Tuesday’s closing bell, is 1% below its record high from last week. It’s up nearly 60% in the past 12 months.
Disclosure: Laffer Tengler Investments holds LUV.
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