Airlines Look Priced for Perfection

This article originally appeared on Jan. 28, 2014, on To read more content like this plus see inside Jim Cramer's multimillion-dollar portfolio for FREE... Click Here NOW.

Of all the equity sectors I track globally in order to gauge immediate economic prospects, the sector that stands out currently is the U.S. airline industry.

The major airline stocks are all ripping higher today and have been doing so over the past six months. American Airlines (AAL) is up 4.5% today alone and 65% in the past six months. Delta Air Lines  (DAL) is up 1.8% today and 50% in the past six months. United Continental Holdings  (UAL) is up 2% today and 33% in the past six months. Southwest Airlines  (LUV) is up almost 3% today and 50% in the past six months.

This level of appreciation has sent the price-to-earnings ratios for the sector to levels that in the past would have been associated with technology growth.

American, Delta, United and Southwest have current price-to-earnings ratios of 26, 13, 23 and 25. A long-term trend for the industry, which is mature, is in the range of 10. Only two of these four pay a dividend, Delta and Southwest, both at a low 0.8%.

Everything is indicating that the stocks of these companies are already priced for no consideration of an economic slowdown over the next several years.

The general consensus in the financial media is that consolidation within the industry is going to return pricing power to a reduced number of participants and that travelers will pay up by necessity.

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