Don’t look now but everyone’s favorite sector to hate, the airlines, is holding steady near the top of the Zacks Industry Rank list. At time of writing, the sector was ranked fifth out of all 257 Zacks Industries with the 23 components in the space possessing an average Zacks Rank of 2.22.
Clearly the depressed oil prices are more than cancelling out the sluggish economic environment for many analysts, as positive revisions are outnumbering negative ones by a roughly 2.5 to 1 margin. In fact, of the 23 stocks, four have a Zacks Rank of 1 or ‘Strong Buy’ (11 have a Zacks Rank of 2) while only one has a Zacks Rank of 4 or higher, translating into a ‘Sell’ (Bristow Group-BRS).
Thanks to this trend, some investors may want to consider making a play on the airline sector due in large part to these favorable analyst views. However, many investors still despise airlines as investments thanks to intense competitive pressures, the impact of volatile oil on airlines’ bottom lines, and the rash of bankruptcies that always seems to impact firms in this corner of the market (Read Airline ETF In Focus As AMR Lands in Bankruptcy).
This bearishness certainly isn’t without merit, especially when looking at the sector compared to the S&P 500 over the long term. In the past year, the S&P 500 has outperformed Southwest Airlines (LUV) by about 1,600 basis points in the time period while it has beaten out the broad Guggenheim Airline ETF (FAA) by about 1,100 basis points as well.
Yet, this has reversed in recent months, as LUV has significantly outperformed the S&P 500 in the past 90 days while FAA has seen a return in line with America’s main benchmark. With thiese kinds of results, airlines could finally be beginning to turn around—at least in the short term—suggesting that if the Zacks Ranks hold up for the segment, it could be time to buy the much-maligned sector (read Is it Time to Buy the Airline ETF?).
What do you think? Is now the time to buy airline stocks or is the sector destined to underperform?
Let us know what you think in the comments below!
Author is long LUV.
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