The big market rout has left no shortage of stocks trading at large discounts to their previous valuations. The important question is which ones are actually a good value given the eruption in markets. With that in mind, here are four well-known names to take a look at. They are General Motors, CVS Health, Macy’s, and American Airlines. GM and AA are trading at near 5x earnings, the latter despite a thriving business. AT&T is interesting too, as shares have fallen 20% in the last year, and the dividend has swelled to 6.7%.
FINSUM: This seems like a good chance to pick up some healthy stocks that have been heavily dented by a selloff, but are poised to recover. We particularly like American Airlines and AT&T.
The airline market has not been doing very well this year. Fuel prices and expanding capacity have weighed on the stocks. United is up big, but the rest of the pack is either in the red or up single digit percentages. Recently, there has been clear winners and losers, with United Continental, Delta, and Spirit being outperformers, and American, Alaska, and Southwest being laggards.
FINSUM: Airlines are an interesting sector, as each has its own unique characteristics, but they are all subject to similar woes. American Airlines has been a big loser this year, but some analysts think it could be the biggest gainer in the medium term.
This summer has seen the brewing airfare battle reach a fever pitch. Led by Spirit Airlines aggressively cutting prices, other carriers have been pushing down fares to stay competitive. Of the big airlines, United has been most aggressive in cost-matching, something its shareholders look ready to revolt against. The problem is that the big three carriers—United, Delta, and American, all have much higher costs than low-cost carriers, often almost double on the industry standard “cost per seat mile” basis, so they are bound to lose any price wars. Big airlines have quite suddenly started caring much more about low cost passengers, as for instance, United says half its revenue come from flyers who only use the airline once per year.
FINSUM: Competing on price is probably going to hurt big US air carriers as they are just not set up to match these low fares.
We do not cover a whole lot of stories on the airline industry, but this one from Barron’s caught our eye. The piece says United is looking up after making a series of top executive hires which could boost the carrier’s performance. One executive, J. Scott Kirby, was let go from American airlines Monday after what was reportedly an awkward meeting with the board. He was then hired immediately by United, which sent the stock up 8.6%. This article argues that both big airlines will benefit from the changes in leadership as they will get a fresh set of thinking. American is currently in better financial health, but United’s business is improving. 2016 has been a poor year for airlines, as they have been rocked by a number of issues, including terrorist attacks and Zika.
FINSUM: We do not profess to know much about the airline industry, but that was a large price move for one non-CEO executive.
Everyone who has flown in the last decade will have noticed that airlines have gotten very excited charging fees for even the smallest conveniences. This practice seems to have hurt fliers’ experiences, but nonetheless been very good for carriers’ bottom lines. However, Congress appears to have had enough, as a group of US lawmakers have put forward a new bill to stop airlines from charging so many fees. The bill is called the “Forbidding Airlines from Imposing Ridiculous Fees Act”, or FAIR Fees Act, and follows a separate attempt to set minimum seat sizes on flights. Through the first three quarters of 2015, the government calculated that the total from extra fees brought in $2.85 bn to airlines, in addition to $2.3 bn from cancellation and change fees, so they are not insignificant. The basis for the bill is the idea that the fees amount to a form of price gouging.
FINSUM: While this newspaper could not agree more with the views expressed in this bill, we do caution that the growing body of legislation attempting to assert itself on airlines could chip away at profitability.
Source: New York Times