This Airline Stock Is Ready for Takeoff

 | Jul 09, 2014 | 3:52 PM EDT  | Comments
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dal

,

aal

The airlines are the non-tech/biotech, momentum plays, and the shocking news that Delta (DAL) missed its numbers last week, causing analysts to guide estimates down, was in many ways the proximate cause of this most recent selloff.

Remember, I believe that there were just a couple of sellers in the last two days, and they were chased down by shorts -- shorts who are already being hurt today. I said the market was thin, but it might have been even thinner than I thought.

Some of that selling activity simply had to do with the extended run in the biotech/techs. But some of it was because Delta caused the analysts to surmise and assume that all airlines were hurting. Now, Delta did reveal a vulnerability that made you realize that estimates had finally stopped being underpromises, but Delta also caused you to realize that airlines aren't monolithic anymore.

This is a new development, not unlike the development of growing cash balances, buybacks and dividends for the companies in this sector. All airlines were either bad or good. But that the combination of U.S. Airways and American Airlines forming American Airlines Group (AAL) is yielding particular benefits to the new carrier, especially because it was the most egregiously blessed-by-Justice deal of all time.

Now the analysts are in a jam. They feel scarred by Delta and I imagine that someone is going to say tomorrow, "Phew, I get to downgrade without hurting the stocks."

To me, though, the issue is all about American itself. Even after today's recovery, it is still a buy, as numbers need to go higher. As long as they still need to go higher, so will the stock. So this nascent strength should be bought, not sold.

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