The Panic-Proof Portfolio (Stockchase Research)Delta Air Lines IncDALTOP PICKJul 16, 2024

The fundamentals are not good given fuel costs soaring because of the war. Earnings have gone from +20% to -6%, but shares are up because DAL has its own oil refinery. DAL hit all-time highs last week.

They report Wednesday. Is one of the most reliable earners in a volatile industry. After Trump's speech last night, airline stocks are down. If the war continues to the end of April, the group will get hit further.

Eventually the Middle East war will end and the airline stocks will fly higher. Key thing is that the US must stay out of recession. He won't buy now after a week when this has fallen 10%, because maybe over the weekend the Strait of Hormuz opens and the airline slump ends.

They report Thursday. One of the best stocks in airlines, but is still -5% this year. There's still demand for travel, though the consumer is weaker. Caveat: airlines are tough to own, since so much can go wrong.

The average valuation is 9X earnings before the pandemic and it is now trading at 9X next year's expected earnings. Other stocks and the S&P are getting more expensive so Delta's valuation should be higher.

Anything tied to debt is rallying in the face of interest rate cuts. DAL has been reducing debt, but there's still a lot. Airline traffic remains robust in the US. DAL is very attractive now.

Airlines are always tough investments. Valuation is certainly cheap. EPS is expected to dip this year and then rise 20% in 2026. However this assumes no recession or other issues. The Q1 was decent and 19% ahead of estimates. The dividend was recently increased 25% (for the Q3). If we see Middle East peace and lower oil prices the stock may start acting better. As a 'value' stock we think it is OK. It has the usual sector and market risks, and we would not see it as a huge secular growth name. But......under the right conditions we could see an 11X mutliple or more, and this would be a good gain if it occurred. But note it's current multiple is not really out of line by historical standards.
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It is down with the other airlines. Although there is some slowing down of business in a couple of areas, the demand is strong for international travel and  this type of traveler likes premium seats. Delta has the highest proportion of premium seats and by 2027 half the revenues will come from premium fees. 85% of new seats being installed are premium seats. He is not really taking recession into account because companies are creating more premium products to meet the demand from their wealthier customers.        Buy 22  Hold 3  Sell 1

Sold it. Airlines have always been only a trade and now they lack momentum. Quite the opposite.

Over 5 years, their annualized return is 15%, inline with the market, but it suffers these crazy ups and downs on a quarterly basis. Operations are still doing fine, including traffic, while fuel prices are declining.

They reported last Thursday, reporting a small revenue miss but an earnings beat, but wouldn't reaffirm their full-year forecast, because the economy is too uncertain. DAL is being cautious, given how the White House changes its trade policy on a dime.

They report Wednesday, and he expects awful numbers, because the company has warned the street. Is busy still weak or weaker since their last report? He worries that the travel bull market is completely done, especially if we go into a recession.