Airlines Sector Shows Relatively Cheap Valuations

In a recent webcast with ETF Trends’ Tom Lydon, Frank Holmes explains that the airlines sector shows relatively cheap valuations compared to other transportation stocks as well as the general market. Whereas airline stocks have a 7 times prices-to-earnings (P/E) ratio, transportation stocks have one of 15 times and the S&P 500 Index as a whole has one of 17 times.

On top of this, airline stocks have demonstrated stronger dividend-yield growth than transportation stocks. For the year ended June, dividend yields in the Bloomberg U.S. Airlines Index grew 88.2 percent, while they grew 14.1 percent during the same period in the Dow Jones Transportation Index.

It’s for these reasons and more that make the U.S. Global Jets ETF (JETS) “attractive,” writes Tom.

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The U.S. Global Jets Index seeks to provide access to the global airline industry. The index uses various fundamental screens to determine the most efficient airline companies in the world, and also provides diversification through exposure to global aircraft manufacturers and airport companies. The index consists of common stocks listed on well-developed exchanges across the globe.

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Free cash flow (FCF) is a measure of how much cash a business generates after accounting for capital expenditures such as buildings or equipment. This cash can be used for expansion, dividends, reducing debt, or other purposes. Operating revenue is income derived from sources related to a company’s everyday business operations. For example, in the case of a retail business, inventory sales generate operating revenue, whereas the sale of a warehouse does not. The price-to-earnings ratio, or P/E ratio, is an equity valuation multiple. It is defined as market price per share divided by annual earnings per share.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. A price-weighted average of 20 transportation stocks traded in the United States. The Dow Jones Transportation Average (DJTA) is the oldest U.S. stock index, compiled in 1884 by Charles Dow, co-founder of Dow Jones & Company. The Bloomberg U.S. Airlines Index is a capitalization-weighted index comprised of the airlines in the Americas that have a market capitalization greater than $250 million. IPOs that meet the minimum market capitalization are included in the index after the first day of trading.

It is not possible to invest directly in an index.

Dividend yield growth rate is the annualized percentage rate of growth that a particular stock’s dividend yield undergoes over a period of time. Short-term performance is not a good indication of future performance.