With the Farnborough air show kicking off this week, airlines are set to be in sharp focus. Of course, Farnborough is the big civil aviation event and often entails various deals being done by airlines and aircraft manufacturers. This year should be no different, with the civil aviation sector showing signs of strength and aircraft manufacturer Boeing stating that it expects passenger numbers to increase by 5% per annum over the long term.
With this in mind, here are three airline stocks that could prove to be profitable investments over the long-term.
International Consolidated Airlines
British Airways owner International Consolidated Airlines (LSE: IAG) has seen its share price come under pressure in recent weeks as the price of oil has risen. Indeed, shares in the company are down 18% since the turn of the year; however, they continue to have strong potential. For example, they trade on a price to earnings (P/E) ratio of just 10.5 (well below the FTSE 100 P/E of 13.8) and yet offer strong growth potential, with earnings per share (EPS) forecast to grow by up to 50% in 2015. Certainly, there may be short-term volatility and a rising oil price could put shares under pressure, but with the sector showing signs of strength, International Consolidated Airlines appears to offer exposure to growth at a very reasonable price.
easyjet (LSE: EZJ) was also hit recently by a higher oil price and, as with International Consolidated Airlines, its shares have been weak in 2014. A fall of 17% year-to-date, though, means that they now trade on a P/E of just 11.1 and, when EPS growth prospects of 13% are factored in for next year, equates to a price to earnings growth (PEG) ratio of just 0.9. This is highly attractive and shows that easyJet could perform well over the medium term. In addition, easyJet has the potential to become a great play for income-seeking investors, since its dividend payout ratio stands at just one-third of profit. Although the shares only yield 3% right now, there is vast scope for this to increase, which would make easyJet a far better income proposition.
Thomas Cook (LSE: TCG) operates 39 aircraft and transports 6.9 million passengers each year and, as with its two rivals, has considerable growth potential. Certainly, Thomas Cook is recovering from a number of difficult years and is only due to return to profitability this year. However, it continues to offer long-term potential. For instance, EPS is due to rise by 50% next year, while the current share price does not appear to reflect this, since shares in the company trade on a P/E of just 11.4. While any company that has been loss-making for three years is inherently riskier than those that haven’t, Thomas Cook could prove to be a strong long-term play and see its share price rise so long as it delivers on its optimistic growth forecasts.
Of course, airlines aren’t the only companies with potential. That’s why The Motley Fool has written a free and without obligation guide on 5 shares that could outperform the market.
These 5 companies seem to offer better value than the wider index and could help you to bolster your portfolio’s growth prospects and income potential. They could make 2014 an even better year for your investments!
Click here to take a look.
Peter Stephens has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.