Is the stock an attractive buying opportunity?

Founded back in 1925 in the United States, Delta Air Lines, Inc. (DAL) is the second biggest airline company in the world by number of passengers carried, as well as by revenue-passenger kilometers flown and fleet size.

Delta is one of the four carriers that control the majority of the US aviation with its 60% share of the domestic market. The company operates over 5,400 flights daily, serving 325 destinations in 52 countries around the globe.

Financial performance, Coronavirus impact & expectations for the future

With the strong demand for air travel in 2019, the company’s passenger revenues accounted for the majority of Delta’s revenues (89.9%) last year. The remaining revenue was generated by the company’s cargo services and other sources. In 2019, 87% of the company’s passenger revenues have been generated through ticket sales, while royalty travel awards and travel-related services accounted for 6.9% and 5.8% of passenger revenues.

In 2019, Delta reported that 71.8% of its passenger revenues have derived from its domestic activities, while its operations in the Atlantic, Latin American and the Pacific regions accounted for 15.1%, 7.1% and 6% of 2019’s revenues respectfully.

Delta reported a loss of $0.51 in the March-ending quarter this year (Q1), which was still better than what analysts had expected (-$0.72).

The company had reported earnings of $0.96 per share in the same quarter of last year, driven by high air-travel demand at the time. Yet, due to the coronavirus outbreak and the fact that the airports had been closed for a few months and flights were cancelled, the company took a significant hit as airlines were among the biggest losers during the pandemic. A significant decrease in revenues and profits for the company during the first quarter were inevitable and only logical taking into account the coronavirus outbreak and the negative consequences caused by the virus.

The company warned a few months ago that is expecting tough times in the 2nd quarter of this year as the virus has continued weighing extremely negatively on the airline’s business. As expected, Delta’s revenues and profits were hit very severely by the coronavirus, which was a big hit for the whole airline industry. Therefore, the company reported a loss of $5.7 billion in the 2nd quarter.

It is important to say that the company’s financial performance has been extremely strong in the past few years and it has managed to continue increasing its revenues on a yearly basis and the net profits have been rising, growing its shareholders’ wealth. In other words, the huge depreciation of the price that sent the stock from the February highs at $60 before the coronavirus outbreak towards the $20-$25 lows has made the stock extremely cheap and gave an opportunity for investors to start buying the leading airline stock at a 67% correction from its highs. Moreover, the company has had an impressive record of dividend payments, returning $2.5 – $3 billion to shareholders in the past few years.

It is important to say that the situation with the virus has started improving slowly but surely all across the globe and there are many pharmaceutical companies out there working hard towards producing a vaccine that is expected to come out at some point in 2021. Furthermore, most countries (especially in Europe) have already started opening their borders and operating different domestic as well as some international flights. All this being said, even though it will take time for Delta to reach the revenues and profits it used to report prior to the pandemic, we are positive that the company’s business will start recovering soon and the leading airline will continue making more money for its shareholders in the future.

Technical analysis – does the company look attractive at these low levels and could that be a great buying opportunity for investors?

By looking at the chart and the historical price movements, we should mention that based on the company’s strong financial performance over the past few years the stock price has more than doubled since June of 2016 when it was trading at the $30 lows to reach the $62 highs in the beginning of 2020, just before the coronavirus outbreak and the negative consequences we have been observing in the past few months. The company’s large cash pile over the past few years has given an opportunity for a few stock buybacks that the company has been doing in order to further boost its share price and maximize its shareholders’ wealth. Stock buybacks are one of the easiest ways for a company to invest in its own stock and help boost the price higher, which is very favorable for investors that own the stock, as they are able to make more money to the upside and get a better value for their investment.

The company stock has actually been in a very strong uptrend in the past 11 years since 2009 when it was trading at only $5 after the financial crisis of 2008 and investors have been appreciating the great financial performance of the company ever since, which has logically reflected on its share price performance.

The worst days for the stock were in the period between the middle of January 2020 and the 19th of March when the stock lost 67% of its value; dropping towards the $19.50 lows. Yet, smart money has started coming in and intelligent investors have been appreciating the huge buying opportunity that the stock has offered at the $19.50 lows and the huge sell-off managed to come to its end in the end of March. In other words, investors started buying aggressively at the $19.50 and that has already reflected positively for the stock, sending it up to the $37 highs in the first week of June. Since then, we have seen a correction towards the $24 lows and another spike towards $31 where it is currently standing. The reason for the price to be trading in a range between $31 and $24 in the past few months is because of the uncertainty among investors as to what would happen with the coronavirus and therefore the future direction of the price. Yet, the stock is still trading at a 50% discount from the highs of $62 in January this year and we believe that would motivate investors to buy the stock as it offers a huge upside potential and once the situation with the virus is over we would be expecting the stock price to be boosted immediately to the upside.

In fact, intelligent investing is the process of buying undervalued stocks with a great financial performance at a decent discount, which then gives an opportunity for investors to make a lot higher profits to the upside when the stock starts recovering. Well, by taking into account the strong financials and the impressive performance the company has had over the years, together with the huge depreciation of the stock lately and the positive expectations for the future in terms of the coronavirus outbreak and the recent positive news coming out from many countries around the globe, we remain positive for the stock in the future and believe it will give a chance for our followers to buy at this huge discount and make high profits when the price starts recovering.

The price is currently trading at just above the support at $31 where lots of buying pressure has been taking place in the past week and it has struggled to go below that level. The technical indicators are heading lower at the moment so we would wait patiently and see how the price would react at that support mark in the next few days. Should we see a lack of further drop and a candle closing below that level we would be interested in buying at that support mark, which would give us a chance to make high profits to the upside.

Chart: Delta Air Lines, Inc. (DAL)

As you know, our approach to the market is based on our Dow Theory 2.0, which gives us a chance to get a confirmation of whether a particular investment is worth going for only if we get a confirmation from some of the biggest ETFs out there that have got the stock within their portfolio.

XLI – Industrial Select Sector SPDR Fund

In order to get a confirmation whether DAL is a good investment opportunity around the current levels, we will firstly look at one of the biggest ETFs out there that invests in the stock – XLI (Industrial Select Sector SPDR Fund), where Delta accounts for 1.38% of the fund and plays an important role for the ETFs’ overall performance.

By looking at the daily chart, we could see that the XLI has been extremely bullish over the past 5-6 months after reaching the low for the year at $47.71 on the 23rd of March when the whole stock market started bouncing after the huge sell-off caused by the coronavirus. Since then, the leading ETF’s stock has managed to break a few key resistance levels to the upside to reach the $80 highs in the beginning of September. Following the profit-taking correction all across the board among all indices and stocks, the XLI dropped towards the $76 where it faced a very strong support mark (broken resistance) which brought lots of buying pressure once the price reached that mark on the 20th of August and bulls started opening lots of buy positions and pushed it towards the $80 right after that. The trend on the XLI remains strongly bullish and the technical indicators will soon reach the oversold territory and start giving further bullish indications. Therefore, we expect the price to find buying pressure at the first support at $76, followed by the next strong support mark at $73 where investors would be motivated to buy more and get a better average price, which would help them maximize their profitability to the upside.

In fact, this clearly confirms our bullish stance on the DAL stock and gives us an indication for a very likely bullish continuation from the current levels.

Chart: XLI (Industrial Select Sector SPDR Fund)

SPY (SPDR S&P 500 ETF Trust)

By looking at the SPY chart, we could see the huge uptrend that has occurred since the price bottomed out from the $218 lows in the end of March to reach the $358.75 on the 2nd of September. The recent profit-taking correction across the board has sent the leading ETF’s price down towards the current levels at $334 where the price has faced a very strong support mark and is currently struggling to go below that level. The reason for that is because traders have seen this as a good buying opportunity after the recent correction that is currently giving a chance to buy at a 7% discount from the highs. Moreover, the lower Bollinger band line matches perfectly with the strong support at that level, while the RSI and Stochastics have gone close to the oversold territory and are expected to start giving further bullish indications very soon as well. The weekly candle on the 11th of September closed above the support at $334 and that was a further indication for a lack of much further downside potential on the price.

Therefore, our expectations remain strongly bullish and based on the recent performance of the SPY, we believe it clearly confirms our bullish stance on Delta stock and the great potential it has got to offer to the upside.

Conclusion

Based on the above-stated facts and after analyzing the performance of the XLI and the SPY, we should say we remain very bullish on Delta’s stock for the future. We expect the leading airline company to find its ground after the massive sell-off caused by the coronavirus pandemic and the negative consequences the virus had on the overall economy and of course on the stock market, leading to a huge correction to the downside. The Dow Experts believe all those corrections to the downside could be a great buying opportunity where we can start investing in the world’s leading stocks at a huge discount – an opportunity we haven’t had in the last 11-12 years since the financial crisis of 2008. In other words, we would like to use the recent correction in our advantage and that would help us maximize our followers’ profits by buying Delta stock at a 50% discount from the highs the stock reached early this year.

We will start buying DAL aggressively at the first strong support mark at $31. In case the price breaks the support at that level, we would be buying again at the next key support mark at $27-28 in order to get a better average price and make higher profits to the upside. Our first profit-taking target is set at $35, followed by the next target at $40 where we would be fully cashing in our profits and waiting for another pullback on the stock so we can buy it again at a strong support level.

Sincerely,

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