Why Airline Stocks Are a Good Post-Midterm Buy

Dice cube with word BUY,stacks of golden coins rising, calculator on the financial stock charts

It’s time to buy stocks again, and airline stocks would be a good place to start. I’ll explain why in a minute. But first, let’s look at the bigger picture…

Why You Should Buy Stocks the Day Before Major Elections

U.S. stock markets have begun their rebound in earnest. And why shouldn’t they? We’re finally past the midterm elections, which weighed heavily on investor sentiment. Big drops in stock market indexes before elections, and subsequent, immediate rebounds, are becoming quite familiar to investors in recent years.

Look above at the stock market action surrounding the Brexit vote on June 23, 2016. Investors apparently became unhinged leading into the vote, dumping their stocks. Then, two days later, they collectively exclaimed, “Never mind!” and bought their stocks back!

Did they learn a valuable lesson about remaining calm and holding their stocks through emotionally-driven world events? Absolutely not.

A mere four months after the Brexit vote, Americans were confronted with the prospect of the November 8, 2016 U.S. Presidential election. As you can see in the S&P 500 price chart, above, investors panicked yet again. Fortunately, investors who held their stock positions – or were brave enough to buy low during the brief stock market downturn – were handsomely rewarded with a strong bull run-up that lasted for over a year!

Fast forward to the 2018 U.S. midterm elections and “lather, rinse, repeat”. The midterm election rally apparently began during after-hours trading on election day, before the election results were tallied! That’s right: the stock market rebound was completely uncorrelated to a Blue Wave or a Red Wave. It was simply associated with the election pressure dissipating, and investors getting back to business as usual.

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The Brexit and U.S. elections were similar in that lots of voters were unhappy with the results. Yet the stock markets responded by rapidly rising. It’s not the election results that investors feared; it was the uncertainty leading up to the results.

You see that one-time events can easily and briefly disrupt the stock market. Your personal success as a stock investor hinges on your ability not to get caught up in the two major emotions that drive investment markets over the short term: fear and greed. If you later become seasoned enough to capitalize on other investors’ fear and greed, then you’re probably going to become wealthy, because investment opportunities abound when stocks rapidly rise or fall.

Nobody has missed the opportunity to capitalize on the current rebound in the S&P 500 index. Whether you’re buying index mutual funds, exchange-traded sector funds (ETFs) or shares of thriving companies like Apple (AAPL) and Netflix (NFLX), odds are strong that your new investments will ride the tide of investors who are smacking themselves for having panicked, and are now rapidly putting their money back into the stock market.

As stock markets rebound from downturns, stocks from different industries will generally move as cohesive groups, some groups lagging the market rebound and others leading the market rebound. Leading industries currently include airlines, engineering companies and apparel companies.

What’s more important to you: buying stocks at the lowest possible price, or buying stocks that are rising sooner rather than later?

Airline Stocks: A Strong Play on a Strong Economy

Airline stocks are trending upward, and you can play it by buying this ETF.Personally, I’d rather buy stocks that are rising right now, so that my money begins growing promptly. To capitalize on the strong financial successes and earnings growth at airlines like Delta Air Lines (DAL) and Southwest Airlines (LUV), I suggest owning shares of the U.S. Global Jets ETF (JETS), an exchange-traded fund. After all, the U.S. economy is in a strong growth phase. As businesses and individuals have more money to spend, they’re traveling more for business purposes and with their families. The increases in travel budgets are being directly reflected in demand and profitability at airline companies.

Why pick just one airline stock when you can spread out your risk within a thriving industry and capitalize on the momentum in multiple airline stocks?

My stock selection strategy always starts with reviewing analysts’ consensus projections for earnings growth. Since stock price growth is highly correlated to earnings growth over the medium and long terms, my investment focus on corporate earnings growth is designed to lead directly to capital gains in my investment portfolio!

Fortunately, projections for 2019 earnings growth among airlines are much higher than their historical averages. Right now, Wall Street is expecting 14% EPS growth in 2019 at American Airlines Group (AAL), 14% EPS growth at Delta Air Lines, 13% EPS growth at Southwest Airlines, 22% EPS growth at Spirit Airlines (SAVE) and 16% EPS growth at United Continental Airlines (UAL).

Therefore, if you’re looking for a way to profit from the strong U.S. economy, corporate financial successes and the current stock market rebound, you can achieve all of those things by investing in airline stocks, either individually, or through an ETF.

Crista Huff

Buy Low, Sell High

Crista Huff is the lead analyst of Cabot Undervalued Stocks Advisor. Her goal is to assist you in outperforming the major U.S. stock market indexes while minimizing risk, by screening many hundreds of stocks for growth, value and bullish technical charts.

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