Market Commentary: 1 Alaskan Stock About To Take Off

Who would be in the airline business? Not even Warren Buffett, who thought he had engineered a near foolproof strategy for investing in airlines, is exposed to the turbulence these days.

Back in 2020 he held a position that seemed ingenious. As a student of history he had learned that the risks posed to any given airline were massive. It would only take one plane to crash, or a hijacking, or a terrorist act, or poor financial management for an airline’s share price to nose dive.

Is there a way around the conundrum of people needing to fly and yet the risks of owning airlines being so high? After all, owning an airline stock is not dissimilar to investing in a toll road in the sense that you can earn a share of every passenger flying. That’s the kind of business Buffett likes to be in, but even he wasn’t willing to buy a single airline stock. So what was his creative investment strategy?

He bought all four major airlines with the “smart” idea that if one ran into trouble the net flow of passengers wouldn’t change. Or, in other words, another airline would win market share from the airline losing its piece of the pie.

Then the pandemic hit, and passenger flows nosedived, and even the foolproof strategy of owning all four major airlines ran aground. So with that perilous context, we introduce an airline stock, not necessarily for fundamental reasons but more so for technical ones.

Key Points

• Alaska Air share price is bearish on a monthly chart but the daily chart is starting to look very attractive.
• A valuation analysis suggests that the upside for Alaska Air now sits at around 53%.
• Trading in airline stocks is risky but the best time is arguably when the technicals and fundamentals line up bullish.

The Monthly View

In the same vein of caution that we stared out, we’ll continue here when discussing the monthly view of Alaska Air.

It’s not a thing of beauty and, candidly, must climb above $37 per share, ideally by the end of this month in order to signal that a new bullish trend is possible.

So is it possible? This is where the tide turns and things start to look good for Alaska Air.

The daily chart for Alaska Air has been pretty awful since August but, by early November, the tide had started to turn in its favor, breaking above the multi-month downtrending resistance line.

Analysts are also quite optimistic on the prospects of Alaska Air and have a price target of $50.46 per share on it, representing upside of 43%.

Risks to that projection include slowing revenue growth, large short-term obligations on the balance sheet, and poor free cash flow yield.

As with any airline, the dangers cannot be overstated but if there’s a time to buy an airline, it’s quite possibly not better than when the technicals and valuation calculations line up in the same direction.