The Secret of David Tepper’s 2013 Success: Delta Air Lines, Inc. (DAL), Apple Inc. (AAPL) and More

United Continental Holdings Inc (NYSE:UAL) was unprofitable in Q4 2012 and in the first quarter of this year, but losses had been smaller than expected before the company turned a profit between April and June. After adding back special charges it has seen little change in operating income compared to a year ago, but the sell-side expects the company to improve enough next year that earnings per share will be $4.72. That is essentially equal to four times what United Continental Holdings Inc (NYSE:UAL) earned last quarter, and results in a forward P/E of 7. Ken Heebner’s Capital Growth Management is another major shareholder in United Continental (research more stocks Heebner likes).

Delta Air Lines, Inc. (NYSE:DAL) trades at 7 times forward earnings estimates- and, in fact, at only 10 times its trailing earnings making it an arguable value stock in those terms. Its financials also show an improvement in terms of costs, aircraft fuel in particular. We wouldn’t expect earnings increases generated primarily by higher margins to be sustainable over the long term, but as we’ve seen the airlines are delivering enough earnings at their current run rate that they really only need to maintain present performance. Billionaire Stanley Druckenmiller had more than doubled the size of his own position in Delta Air Lines, Inc. (NYSE:DAL) during the first quarter of the year (see more stocks Druckenmiller was buying).

As a result even with these stocks’ strong performance year to date and with the substantial risk which comes with investing in airlines- all three mentioned here have been bankrupt at some point- they are still worth considering for a value portfolio. It might be a bit too risky to concentrate one’s portfolio entirely on the industry, but the forward earnings multiples are certainly low in absolute terms. It will also be interesting to see if Tepper took profits on any of these positions when Appaloosa releases its next 13F filing later this month.

Disclosure: I own no shares of any stocks mentioned in this article.