The esteemed Ned Davis research letter might give The Insiders Fund an unexpected push toward the finish. As readers of our blog should know we’ve been pretty keen on the undervalued airline sector. We especially like Delta here with its recent pullback in price. We also own American Airlines and United Airlines. We know we are in good company with Warren Buffett, Delta’s largest shareholder. I keep thinking he is going to buy Delta as one final hurrah. That’s what an Investor Business Daily article said back in April. With the recent pullback, it might be more likely.
The analyst, Stifel’s Joseph DeNardi, said in a research note that the Delta-American Express deal could effectively make the carrier one of the most valuable companies in the world.
“While we had suspected that Delta could announce an extension with AmEx at some point this year, this is earlier than we had thought and the improvement in revenue and economics are significantly better than we were expecting,” he wrote in the April note.
“We view the agreement as a significant positive for Delta and the industry, and we believe the duration of the contract increases the likelihood that Berkshire buys Delta,” he continued.
On October 25th Barron’s reported that the Ned Davis newsletter published the following:
“Airline analysts have made a habit the past few years of raising fourth-quarter earnings expectations late in the year. Airlines are currently one of only a handful of industries with a positive Earnings Revision Ratio for Q4.The more upbeat year-end expectations have resulted in strong year-end outperformance over the past 10 years, on average. Airlines outperformed the S&P 500 in November and December seven of the last 10 times, and [the industry] experienced its highest average relative performance in those two months.
The bottom line is that there are enough positives for the Airlines industry that it should remain on investors’ radar. Bullish internal indicators and favorable seasonality have us leaning bullish short-term. We take it as a bullish sign that despite economic and 737 Max concerns, relative strength has not broken down. If recession risks fall and we get more bullish on cyclical industries, we could make the Airlines industry a high-conviction long-term recommendation.”