Before the start of the last earnings season, I put forward three stocks for investors to buy namely JetBlue (JBLU), Volaris (VLRS) and Virgin America (VA). While JetBlue has underperformed in the reference time period, both Volaris and Virgin America have proven to be winners. For the upcoming earnings season, I have shortlisted my three best picks from the aviation industry. Let’s take a look at the stocks.
Despite recommending them for the last earnings season, I think both JetBlue and Volaris deserve a mention.
Shares of JetBlue have pulled back following the carrier’s failed bid to acquire Virgin America. However, I think investors should use the recent pullback to load onto the stock as it is undervalued.
With JetBlue yet to completely roll out its Mint program and with air fares moving higher, I think the stock is cheap and has about 15% upside potential.
As for Volaris, although I recently recommended investors to take some profits off the table, I think the stock can still move higher due to its strong expansion. While investors are worried about overcapacity in the U.S. market, Volaris has seen its capacity grow at a rapid pace. Unlike other carriers, Volaris has increased its capacity in the Mexican aviation market, which has seen strong growth in demand. The company plans to sustain its double-digit growth in the Mexican market and due to the growing middle class, I expect these initiatives to lead to more profits.
I have often touted Spirit Airlines (SAVE) as my best long idea for 2016 and I still think the stock has a lot more upside to offer. Under the leadership of new CEO, Spirit Airlines plans to cut back on its capacity growth and focus on customer relations. Spirit has established itself as the most hated airline, however focusing on improving customer satisfaction can help the company improve its long-term prospects.
In addition, with crude oil moving higher, Spirit is also regaining its competitive edge. When crude oil was around $30, the likes of American Airlines could afford to compete against Spirit on price. However, with crude oil now moving higher, other carriers will find it very difficult to undercut Spirit as the carrier has the lowest unit cost. Given the cheap valuation, I think Spirit has a lot of upsides to offer, making it one of my best picks for the earnings season.