We recently published a list of According to hedge funds, the 10 best very cheap stocks to buy now. In this article, we take a look at how United Airlines Holdings, Inc. (NASDAQ:UAL) compares to other stocks that hedge funds think are very cheap.
As we approach the third half of 2024, the market’s performance continues to attract both investors and analysts. After an average increase of 24% last year, the 500 U.S. stocks with the highest market capitalization closed the second quarter of this year with an impressive gain of over 3% on average. Overall, the unexpectedly robust U.S. economy and the rapid AI boom have driven stock prices to unprecedented levels.
Although markets are currently concerned about a slowdown, recent economic indicators complement this market trend and show the resilience of the U.S. economy. The Commerce Department reported a 3.1% year-on-year increase in the economy for the fourth quarter of 2023, driven primarily by solid consumer spending on restaurants, healthcare, and autos. The growth forecast for the world’s largest economy was revised slightly to 2.6% by the IMF this year, indicating the country’s resilience and adaptability to changes in the global economy. According to Economic Intelligence’s 2024 Consumer Goods and Retail Outlook Study, global retail sales are expected to grow 6.7% in 2024, supported by a 2% increase in volume, despite a decline in inflation.
This brings us to industries that sell at a discount, including broadcasting, which has an EV-EBITDA ratio of 7.31. According to The Business Research Company, the television and broadcast markets have grown strongly in recent years. They are expected to grow from $439.41 billion in 2023 to $466.83 billion in 2024, at a compound annual growth rate of 6.2%. According to Future Market Insights, North America has the largest market share in television broadcasting services globally, followed by Asia Pacific.
The introduction of digital broadcasting and the Internet has brought about major changes in the television industry. Broadcast television and cable coexist with cable substitutes such as HBO Max, Netflix, and Amazon Prime Video. Many others have canceled their cable connections entirely, choosing to get all of their television needs online. The Motion Picture Association of America reports that the film and television industry has a major economic impact, employing 2.5 million people and paying out over $188 billion in compensation annually.
Another industry that is trading at a discounted price is aviation, which has an EV-EBITDA ratio of 6.17. The Business Research Company reports that the size of the aviation market has grown dramatically in the past few years. The projected CAGR is 6.8%, which would mean an increase from $1,016.38 billion in 2023 to $1,085.37 billion in 2024. Moreover, the size of the aviation sector is expected to increase significantly in the next few years. With a CAGR of 6.5%, it will reach $1,394.51 billion in 2028.
The future expansion of the air transport market is expected to be driven by the growth of e-commerce and online shopping. For example, in September 2022, the U.S. Department of Commerce’s International Trade Administration reported that consumer e-commerce accounted for 30% of the total UK retail market (up from 20% in 2020), with e-commerce sales exceeding $120 billion annually. In the UK, 82% of individuals will have made at least one online transaction by 2021.
Methodology:
For our list of the 10 best very cheap stocks to buy now, according to hedge funds, we chose stocks with an institutional ownership of over 70% and a P/E ratio below 10 as of June 25. We narrowed our selection down to the 10 stocks most commonly held by institutional investors and ranked them in ascending order by the number of hedge funds that will own shares in them in Q1 2024. In cases where two or more stocks have the same number of hedge funds, we used the P/E ratio as the decision criteria.
To identify cheap stocks, we looked for companies with a strong earnings track record by evaluating their earnings per share over the past two to three years. Second, we only considered stocks that were recommended by analysts as a “buy” or “strong buy.”
Why do we care about the stocks hedge funds invest in? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (See more details here.)
A bird’s eye view of a large commercial aircraft taking off from an airport runway.
United Airlines Holdings, Inc. (NASDAQ:UAL)
Number of hedge fund owners: 46
P/E ratio as of August 1: 4.81
United Airlines Holdings Inc (NASDAQ:UAL) is one of the best very cheap stocks to buy, according to hedge funds. United Airlines Holdings, Inc. and its subsidiaries provide air transportation services throughout North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. The company uses its mainline and regional fleets to transport passengers and cargo. In addition, it provides maintenance, flight training, catering, and ground handling services.
A total of 46 hedge funds tracked by Insider Monkey reported owning shares in United Airlines Holdings Inc (NASDAQ:UAL) at the end of the first quarter. The company’s largest shareholder, Frank Fu’s CaaS Capital, owns 10,200 shares valued at $496,332.
Comparing UAL’s P/E ratio of 4.81 to the industry average of 12.93 looks cheap. This means that UAL can be a cheap investment relative to its growing earnings.
Recently, United Airlines (NASDAQ:UAL) released its second-quarter 2024 results, which showed slightly lower revenue and higher profit than expected. The company reported revenue of $14.99 billion and adjusted earnings of $4.14 per share, versus forecasts of $15.15 billion and $3.99, respectively.
UAL’s stock price fell over 72% in 2020 due to the pandemic, when travel demand was virtually zero. In early January 2021, UAL stock was trading at $45; it has since risen to $48. This compares to 45% growth for the S&P 500 over the same period. UAL’s 2021, 2022 and 2023 stock returns of 1%, -14% and 9%, respectively, lagged the S&P 500’s returns of 27%, -19% and 24%, respectively. At $15 billion, second-quarter revenue increased 5.7% compared to the same quarter last year. Available seat miles increased 8.3% for the airline, while passenger revenue per available seat mile fell 2.9%. In the second quarter of fiscal 2023, adjusted pretax margin was 15.3%, but now it is 12.1%. After rising to $5.03 in the second quarter of FY23, adjusted earnings per share fell to $4.14.
According to UAL, the average price of gasoline per gallon has increased 3.8% over the past year. The company forecasts third-quarter 2024 adjusted earnings per share between $2.75 and $3.25, with a range of $9 to $11 expected for full-year 2024. However, the third-quarter 2024 forecasts are below the average consensus expectation of $3.44.
The reiteration of full-year expectations benefited UAL shares, which rose 8% in just one week despite the company’s weak second-quarter earnings and gloomy third-quarter guidance.
ClearBridge Value Equity Strategy stated the following about United Airlines Holdings, Inc. (NASDAQ:UAL) in its fourth quarter 2023 investor letter:
Our industrials faced headwinds early in the quarter due to recession fears, which weighed on some of our more cyclical industrials such as United Airlines Holdings, Inc. (NASDAQ:UAL). In addition, the Fed’s policy change and the prospect of rate cuts in 2024 contributed to a rally in lower-quality industrials that we did not hold, further dampening the performance of our high-quality holdings.
Analysts have a mixed opinion on UAL, citing the uncertain macroeconomic climate, high oil prices, and high interest rates. Nevertheless, the 13 analysts have given the stock a “strong buy” rating with an average price target of $72.78 and an upside potential of 71.73% from the current share price of $42.38. This means that most analysts believe this stock is likely to do very well in the near future and significantly outperform the market.
Strong second-quarter 2024 results and confirmed full-year expectations for United Airlines position the airline well for future performance. Although results have been inconsistent, the stock appears cheap and has great upside potential.
General UAL 7th place on our list of very cheap stocks to buy. You can visit The 10 best very cheap stocks to buy now, according to hedge funds to see the other very cheap stocks that are on hedge funds’ radar. While we recognize UAL’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than UAL but trades at less than 5x earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these 10 stocks in June.
Disclosure: None. This article was originally published on Insider Monkey.
