Book Profits on Airlines Pre-Earnings

TheStreet.com

NEW YORK (TheStreet) -- Airline stocks have been flying high in the sky so far in 2013. Today I profile 11 airlines and nine of them report quarterly results next week. All are flying well above their 200-day simple moving averages, which reflects the risk of a reversion to the mean particularly given that three are rated hold and eight are rated sell according to ValuEngine.

All 11 airline stocks are overvalued, seven by more than 20%. Ten of 11 are flying higher by double-digit percentages over the last 12 months except one, which is down by less than 5%. Nine are higher by 26.1% to 114.2%. All are projected to be at lower altitudes 12 months from now.

The airline industry is 20.6% overvalued in a market that's trading under a ValuEngine valuation warning with 75.3% of all stocks overvalued, and with 42.2% of all stocks overvalued by 20% or more. We still show that 15 of 16 sectors are overvalued, 13 by double-digit percentages.

Given this investment environment investors should not be adding to positions in airlines and should consider taking profits before these earnings reports are released next week. Investors should reduce allocations to stocks to 50% of their equity market allocations.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

Alaska Air ($61.07) set a multi-year high at $68.00 on May 8 and then traded as low as $50.31 on June 24. My quarterly value level is $51.00 with a semiannual pivot at $62.62 and monthly risky level at $66.19.

Delta Air ($19.44) set a multi-year high at $19.73 on July 1. My weekly value level is $18.96 with a semiannual pivot at $19.37 and monthly risky level at $21.28.

Hawaiian Air ($6.43) set a multi-year high at $7.30 back on Jan. 7 and its year to date low is $5.18 on April 24. My monthly value level is $6.00 with a semiannual pivot at $6.22 and semiannual risky level at $6.60.

JetBlue ($6.48) set a multi-year high at $7.28 on April 15 then held its 200-day SMA on June 24. My weekly value level is $6.21 with a monthly risky level at $7.00.

US Airways ($17.76) set a multi-year high at $19.70 on May 17 and traded as low as $15.59 on June 24. My weekly value level is $15.31 with a monthly risky level at $18.57.

Southwest Air ($13.48) set a multi-year high at $14.56 on May 21 and traded as low as $12.58 on July 3. My weekly value level is $12.79 with a semiannual risky level at $15.66.

Republic Airway ($11.95) set a multi-year high at $11.98 on July 15 after being as low as $9.56 on June 6. My weekly value level is $11.08 with a monthly risky level at $14.31.

Ryanair ($52.15) set a multi-year high at $54.17 on July 1. My quarterly value level is $44.36 with a monthly pivot at $52.95 and weekly risky level at $56.34.

Spirit Airlines ($33.94) set a multi-year high at $34.22 on July 12. My monthly value level is $31.23 with a weekly risky level at $35.27.

SkyWest ($15.23) set a multi-year high at $16.32 on March 19. My weekly value level is $14.04 with a semiannual risky level at $16.13.

Read: HED-HERE

United Continental ($32.01) set a multi-year high at $35.27 on May 20 and traded as low as $29.00 on June 24. My weekly value level is $29.35 with a monthly risky level at $37.19.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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