Airline Stocks Gain Strength: Wall Street Fake-Out or Real?

Written by Mitchell Clark, B.Comm., Profit Confidential

The golden rule works.

In Milwaukee, Wisconsin, there is an Irish inn and pub called the ‘County Clare.’ I happened to be walking around looking for breakfast and checked it out.

I sat down, ate one of the best breakfasts ever, and then learned it was complimentary. I immediately said that I was not a guest. The answer? “Don’t worry about it.”

Needless to say, I changed hotel reservations and was very happy about it.

On the stock market, Marriott Vacations Worldwide Corporation (NYSE:VAC) has been exceptionally strong over the last two years. The company’s earnings are expected to jump this year, along with the entire vacation/travel industry. Marriott’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

Airline stocks are also doing exceptionally well on the stock market. Airline stocks experienced a powerful breakout recently, and Wall Street earnings estimates are increasing for these stocks.

One of the best-performing lodging companies on the stock market is Wyndham Worldwide Corporation (NYSE:WYN). The company operates several brands, including Ramada, Days Inn, Super 8, Howard Johnson, Microtel Inns & Suites, Wyndham Vacation Resorts, and Shell Vacations Club.

A number of lodging stocks have high price-to-earnings multiples, but Wyndham’s is more reasonable.

In its last earnings report, Wyndham beat the Street on both revenues and earnings. Fourth-quarter revenues grew nine percent to $1.1 billion, while earnings grew to $81.0 million, or $0.57 per diluted share, compared to earnings of $56.0 million, or $0.37 per diluted share, for the fourth quarter of 2011. Wyndham’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

The fourth quarter of 2012 showed improvement in travel industry numbers. Whether this improvement is sustainable or not is a whole other question. (See “Breakouts All Around; Final Countdown or the Beginning of a New Cycle?“)

A number of Wall Street analysts are saying that airline stocks have a lot more room to move higher on the stock market. This is partly because of the exceptional underperformance of airline stocks and the pent-up demand to bring up their valuations.

Delta Air Lines, Inc. (NYSE:DAL) is up 50% on the stock market since last December,with trading volume recently spiking much higher. Of course, the most annoying airline for passengers is usually the most beneficial for investors.

On the stock market, Priceline.com Incorporated (NASDAQ:PCLN) is now a Wall Street favorite. Last quarter, the company’s gross total bookings grew 33% to $6.6 billion, and earnings grew to $289 million, or $5.63 per diluted share, compared to $226 million, or $4.41 per diluted share, for the fourth quarter of 2011.

The company is predicting a very good first quarter with solid growth in gross total bookings and earnings. But priceline.com does a lot of business in Europe, and company management cited ongoing uncertainty in the eurozone for holding the company back.

Still, the company’s growth in the face of generally lackluster economic conditions is impressive.

First-quarter earnings season is here, and a great investor benchmark will be the results from the lodging and airline industries. These companies are good economic and stock market indicators.