Is Alaska Air Group, Inc. (NYSE:ALK) the Top Airline Stock to Buy This Summer?

We recently published a list of the 10 Best Airline Stocks to Buy For 2024. Since Alaska Air Group, Inc. (NYSE:ALK) ranks 6th in the list, it deserves a deeper look.

Despite rising inflation, consumers worldwide continue to spend on travel and experiences, defying all expectations and forecasts. Latest data from the International Air Transport Association (IATA) estimates that the airline industry is expected to generate $30.5 billion in net income in 2024, driven by higher ticket prices and consumers’ desire to travel. Last year, the industry’s net income came in at $27.4 billion. According to data from the World Travel & Tourism Council (WTTC) the economic impact of the travel industry this year is expected to soar to $11.1 trillion, beating its previous level of $10 trillion recorded in 2019. The Council expects the tourism industry to become a $16 trillion industry over the next decade, accounting for about 11.4% of the global GDP.

However, not all is rosy in the airline industry. The competition in the industry is increasing, while geopolitical headwinds and rising employee costs continue to batter small and large airline companies. IATA was quick to highlight that despite the industry growth, airlines’ profit per passenger is just $6.14. Travel demand in China also remains subdued amid real estate and economic crisis in the country. However, analysts believe sooner or later the country would rebound and the best airline and travel companies would benefit from the influx of Chinese tourists.

A KPMG report on the airline industry highlighted the resilience of the airline industry and its fast recovery to pre-pandemics levels:

“The latest air travel data from IATA shows that passenger travel for November 2023 globally has reached 99.1% of November 2019 levels. November 2023 international RPKs reached 94.5% of November 2019 levels, while domestic traffic was 6.7% above the November 2019 level. Although international global travel remains 5.5% below pre-pandemic levels, IATA director general Willie Walsh said that the gap is “rapidly closing”, adding that current “economic headwinds are not deterring people from taking to the skies”. IATA also noted that long-term airline profitability shows that while the industry is exposed to external shocks, it typically returns to profitability “relatively quickly”.”

In this backdrop, we decided to take a look at some of the best airline stocks to buy in 2024 according to hedge funds. For that we first listed down all holdings of an airline ETF, which provides investors exposure to the airline industry and tracks some of the biggest and most important airlines and aviation companies of the US and worldwide. From these stocks we chose 10 companies with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Photo by Toa heftiba on Unsplash

Alaska Air Group, Inc. (NYSE:ALK)

Number of Hedge Fund Investors: 28

Alaska Air Group, Inc. (NYSE:ALK) is one of the biggest airlines in the world in terms of scheduled passengers carried. The stock is up about 6% so far this year. But Wall Street sees more upside potential to the stock.  Last month, Wolfe Research upgraded the stock to Outperform from Perform, citing corporate recovery, lower regional jet fuel prices, and improving competitive capacity. Wolfe Research set a $55 price target on the stock, which represents a 40% upside potential from the current levels.

In April, Alaska Air Group, Inc. (NYSE:ALK) reported strong Q1 results and gave upbeat Q2 and full-year guidance. The company’s management said that despite significant headwinds the company has exceeded challenges. The company’s management also talked about Boeing-related headwinds and compensations it received from the company during Q1 earnings call:

“As you are all aware, the most significant event this quarter was the accident involving Flight 1282 and the subsequent 4-week grounding of a third of our fleet. Our focus has been on the safe return of our fleet, caring for our employees and guests and enhancing our oversight of the production of our new aircraft. This event also had a substantial financial impact, totaling $162 million, which Boeing has fully compensated us for. To provide clarity on our core business performance, I will discuss our Q1 results, excluding the effects of Flight 1282 and the MAX grounding. During the quarter, we also received a second request for information from the DOJ, regarding our proposed acquisition of Hawaiian Airlines.

We are working to respond to these requests as quickly as possible. Given the substantial volume of information involved, we have granted the government an additional 60 days to review our responses, and we’ll continue to work with them to advance the process as swiftly as possible. We still believe strongly in the pro-consumer and pro-competitive merits of this deal and are excited by the opportunities this will unlock for Alaska, both domestically and internationally. “

In 2024, Alaska Air Group, Inc. (NYSE:ALK) expects its yield per revenue passenger mile to increase 3.5% on a YoY basis. Investors are also looking forward to the regulatory outcome on the company’s plan to acquire Hawaiian Airlines for $1.9 billion deal. Analysts believe if the deal goes through, Alaska Air Group, Inc. (NYSE:ALK) would be able to consolidate the West Coast business.

Alaska Air Group, Inc. (NYSE:ALK) stock is trading at 6.46x 2025 EPS estimate set by Wall Street. This forward P/E ratio is much lower than the industry median of 18.54. Given the company’s EPS growth expectation of 39% in 2025 and 19% in 2026, the stock looks attractively valued.

Diamond Hill Long-Short Fund made the following comment about Alaska Air Group, Inc. (NYSE:ALK) in its Q3 2023 investor letter:

“Other bottom contributors included our long positions in Alaska Air Group, Inc. (NYSE:ALK), Target Corporation and Johnson Controls International (JCI). Shares of regional airline Alaska Air Group and general merchandise retailer Target declined during the quarter amid a weakening consumer and (in Alaska’s case) airline pricing environment.”

Overall, Alaska Air Group, Inc. (NYSE:ALK) ranks 6th on Insider Monkey’s list of 10 Best Airline Stocks to Buy For 2024. You can visit 10 Best Airline Stocks to Buy For 2024 to see other stocks in the list. While we acknowledge the potential of Alaska Air Group, Inc. (NYSE:ALK), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Alaska Air Group, Inc. (NYSE:ALK) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.