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3 Best Airline Stocks to Buy Right Now

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When video emerged online showing a passenger being dragged off a United Continental (UAL - Free Report) flight earlier this year, consumers, analysts, and investors alike reacted in horror. Shares of the Chicago-based carrier took a huge hit as a result of the incident, and the legacy airline’s market cap lost upwards of $950 million.

In a statement, United said four crew members needed to get to a flight departing from Louisville otherwise it would be canceled, and passengers were asked to voluntarily give up their seats. However, no one volunteered, and four passengers were then selected at random, including David Dao, the man who was forcibly removed.

What happened onboard in April was not United’s last PR mess that surfaced. Soon after, the airline barred two teenage girls from boarding a flight after a gate agent decided the leggings they were wearing were inappropriate. The incident was first reported by a fellow passenger on Twitter , and subsequently went viral.

But the girls were apparently “pass travelers,” a company benefit that allows United employees and their dependents to travel for free on a standby basis; leggings violated this specific dress code, since pass travelers are “representing” the airline.

Incidents like these began popping up all over the Internet and traditional news sites, detailing the poor customer service experienced on flights across the industry. From an American Airlines’ (AAL - Free Report) crew member yanking away a mother’s stroller and almost hitting her child to the death of a giant rabbit named Simon on a United flight, viral stories about flying nightmares were nonstop.

Industry Outlook

Despite one public relations disaster after another, the airline industry kept chugging along, and right now, Transportation-Airline sits in the top 8% of all 265 industries ranked on the Zacks Industry Rank; the sector has also returned over 10.5% year-to-date, which is on par with the S&P 500, and 36% over the past 12 months.

Historically, airline stocks were—and they still are—a turbulent investment, closely tied to fluctuating oil prices. But during periods of low oil prices and steady economic growth, like the type of environment we’re in now, airlines see their profits rise. Since 2014, U.S. airline stocks as a group have gained almost 90%.

The International Air Transport Association (IATA) expects the global airline industry to bring in $30 billion in profits this year, with 4 billion projected travelers. The earnings represent a 4.1% net profit margin on top of total revenue of $736 billion.

Even Berkshire Hathaway (BRK.A - Free Report) CEO Warren Buffet, who publicly denounced airline investments in the past, sees promise in the industry. Last year, the famous investor bought stakes in all four major U.S. carriers: United, American, Delta Air Lines (DAL - Free Report) , and Southwest (LUV - Free Report) .

Given this overall bullish sentiment, let’s take a look at three airline stocks investors should consider for their portfolio.

SkyWest (SKYW - Free Report) operates one of the larger regional airlines in the U.S., and provides passenger and air freight services. The carrier sits at a #2 (Buy) on the Zacks Rank, and boasts a VGM score of ‘A,’ with individual Style Scores of ‘A’ in Value and Growth.

SkyWest expects year-over-year earnings growth of 18.59% for the current year, and three analysts have revised their estimates upwards in the last 30 days compared to none lower. The company has an average earnings surprise of nearly 13%, while SkyWest has also beaten expectations in the past four consecutive quarters. In the past one year, SKYW has given its investors a solid return of over 30%.

Delta is one of the country’s fastest growing international carriers, and has added more international capacity than all other U.S. airlines combined. Sitting at a #1 (Strong Buy) on the Zacks Rank, Delta also has a Value Style Score of ‘A,’ with an overall VGM score of ‘B.’

The Atlanta-based airline anticipates year-over-year earnings growth of about 3.6% for the current year, with three positive estimate revisions in the last 30 days compared to only one negative revision in the same time frame. Delta has beaten expectations in three of the past four consecutive quarters, and has an average earnings surprise of almost 2%. Shares of DAL have surged over the past year, gaining over 35%.

Despite its many PR setbacks, United is actually looking to be a pretty promising pick. The airline is one of the largest in the world, and is the holding company for United Airlines and Continental Airlines. United is currently a #2 (Buy) on the Zacks Rank, and has a VGM score of ‘A,’ with Value and Growth Style Scores of ‘A’ and ‘B,’ respectively.

While United expects earnings loss of about 9% for the current year, the airline’s earnings do appear to bounce back next year, with United projecting year-over-year growth of over 12.5%. This, however, does not come as a surprise, as the airline was hit hard financially earlier this year. Historically, United has beaten earnings in the past four consecutive quarters, and has an average earnings surprise of 5.4%. Over the past 12 months, UAL has gained almost 39%.

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