Allegiant Travel Company (ALGT), Spirit Airlines Incorporated (SAVE): Two Solid Airline Stocks to Buy

Page 1 of 2

Allegiant Travel Company (NASDAQ:ALGT)The airline sector has really taken off over the last six months, with nearly every major name posting big gains for investors. Of the four largest publicly traded airlines, US Airways Group Inc (NYSE:LCC) is a laggard even though shares have risen more than 40% since Thanksgiving; by contrast, Delta Air Lines, Inc. (NYSE:DAL) shares have nearly doubled. Last fall, any airline stock was a good stock to buy due to the sector’s remarkably depressed valuation.

DAL Chart

“The Big Four” Airlines, Six-Month Price Chart data by YCharts

After the recent airline rally, it’s harder to recommend investing in the major airlines. With the exception of Southwest Airlines Co. (NYSE:LUV), they all carry significant debt burdens and/or pension liabilities. Moreover, the major carriers all reported disappointing unit revenues last month, highlighting their continuing susceptibility to economic weakness.

However, there are still good stocks to buy in the airline sector, if you look a little further afield. Allegiant Travel Company (NASDAQ:ALGT) and Spirit Airlines Incorporated (NASDAQ:SAVE) are the two pioneers of the “ultra-low-cost carrier” concept. By keeping costs and base fares low, but charging fees for things like checked bags, carry-on bags, seat assignments, and onboard snacks and drinks, these companies have consistently achieved industry-leading margins. This positions Allegiant Travel Company (NASDAQ:ALGT) and Spirit Airlines Incorporated (NASDAQ:SAVE) for long-term earnings growth.

Money machines
Allegiant Travel Company (NASDAQ:ALGT) and Spirit both have established track records of profitability, unlike many of their airline peers. This stability makes them better stocks to buy for long-term investors. Allegiant Travel Company (NASDAQ:ALGT) has been profitable for 41 consecutive quarters , while Spirit Airlines Incorporated (NASDAQ:SAVE) has been profitable for each of the last four years. In fact, neither company has been in much danger of losing money recently.

Airline pre-tax margins, 2009-2012 (Source: Allegiant SEC 8-K 2/12/13)

As the above chart shows, Allegiant has delivered double-digit pre-tax margins in each of the last four years, while Spirit only fell short of that feat in 2010. High margins provide a buffer, which can ensure that Allegiant and Spirit Airlines Incorporated (NASDAQ:SAVE) remain profitable despite volatility in economic conditions and fuel prices.

Furthermore, both companies have delivered strong earnings growth recently. Allegiant Travel Company (NASDAQ:ALGT) posted a 58% increase in EPS last year, allowing the company to eclipse its EPS record from 2009, when fuel prices were much lower. On average, analysts expect EPS growth of more than 30% at Allegiant this year. Meanwhile, Spirit grew net income by more than 40% last year, and is expected to post similar improvement this year.

A long track record of profitability, strong pre-tax margins, and earnings growth are all attributes sought by investors. For long-term investors, these characteristics could make Allegiant and Spirit Airlines Incorporated (NASDAQ:SAVE) great stocks to buy.

How do they do it?
While Allegiant Travel Company (NASDAQ:ALGT) and Spirit Airlines Incorporated (NASDAQ:SAVE) have different business models, there are a few common elements that unite them. First, the low-fare/high-fee structure takes advantage of human psychology (the “foot-in-the-door” technique) to get potential customers interested in a leisure trip before revealing how much it will actually cost after fees.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!