Alaska Airlines: An Outperformer in an Underperforming Industry

Jun. 7.11 | About: Alaska Air (ALK)

The airline industry gets a lot of bad press. Airline companies only get in the news if one of their pilots fall asleep or a plane crashes. But that doesn't mean they are bad investments. My personal favorite airline company is Alaska Air Group (NYSE:ALK), Alaska Air is only about 1/4 of the size of Delta (NYSE:DAL) and Southwest (NYSE:LUV) and is currently trading at a P/E of less than half of both companies.

Every time I fly on an Alaska Air flight I'm pleased with the service and always have an enjoyable time. That's what I like about the company, the business model is relatively simple and can be understood. Airlines are a great investment in that they are something you can experience for yourself, unlike companies such as Cisco (NASDAQ:CSCO) or Bank of America (NYSE:BAC), who's business is slightly more complicated to comprehend. Rule 1 should always be to understand your investment, Alaska Air passes that test.

Even with oil prices as high as they are, Alaska Air is turning a huge profit. In the last four quarters we've seen Alaska Air profit $7.58 per share. Consequently, its book value has been getting progressively better each quarter. Alaska Air currently is sitting on over $29 in cash per share, that's over 45% of the current share price. Alaska Air saw revenue jump over 11% from 2009 to 2010 and is projected to increase about another 10% in 2011. The growth is there along with the value.

Alaska Air closed at $63.16 on Monday, putting its P/E just over 7, Southwest is trading at $19 and Delta at $15. Simply based on earnings, it's the cheapest of those three airlines, and by over 50%.

Along with being a classic value play in a beaten up industry, Alaska Air has made huge strides in the last year. The stock is up over 30%, while Delta and Southwest have declined -4% and -7%, respectively. In other words, Alaska Air has been outperforming its competition and seems positioned to continue to do so. The long term chart is extremley bullish and has shown no signs of decay despite the recent spike in oil.

With high oil prices and Alaska Air shares down 9-10% from recent highs, it seems like now is an excellent entry point for a long term investment. I'm very bullish on Alaska Air and will continue to be as it trades to a discount from its competitors. Not only that, but what better time for an airline stock to get hot than during summer, when traveling is at its peak. I'm ready to fly with Alaska Air.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ALK over the next 72 hours.