10 hours Ago By [email protected] (Bram Berkowitz)
It's not uncommon for Stanley Druckenmiller to buy a group of stocks in one particular sector. The billionaire investor has done this frequently with tech stocks and, recently, financials. That's because Druckenmiller keeps a close eye not just on the performance of individual companies but also on the broader economy.
Certain conditions favor some sectors over others, so astute investors can detect changes in the cycle and shift their portfolio to pick stocks suited to outperform. In the fourth quarter, filings show that Druckenmiller's fund, the Duquesne Family Office, launched new stakes in three stocks that were finally getting off the ground. A focus on premium In the fourth quarter, Druckenmiller piled into airline stocks , scooping up shares of three major carriers.
His purchases include: 1,043,805 shares of United Airlines ( UAL -6.44% ) and call options. 817,740 shares of Delta Airlines ( DAL -5.
88% ) and call options. 919,928 shares of American Airlines ( AAL -3.97% ) and call options.
Druckenmiller hasn't owned United since 2017, Delta since 2020, and American since 2019. After the onset of the COVID-19 pandemic, many investors, including Warren Buffett, shunned airline stocks, questioning if travel would ever be the same, given what had just happened to the economy. It took several years, but airline stocks have performed well since the back half of 2024, although returns are still dreadful compared to the broader market.
UAL data by YCharts After the pandemic, it took some time for travel to recover, but it finally happened as consumers proved to be resilient, and people got back into the swing of their normal lives and wanted to make up for lost time. This demand has only grown. According to the International Air Transport Association, a record of roughly 5.
2 billion people are expected to fly in 2025, up nearly 7% year over year. Analysts say that airlines have done well and driven revenue growth by adding more flight routes and premium services. Have you ever requested extra legroom? Or early boarding? Or paid more to be able to get a full refund in case you suddenly had to cancel your trip? Well, the airlines are seeing a material impact from these services, even if consumers may not be so thrilled about it.
In its annual 10-K filing, Delta specifically says that it has diversified its business in part by focusing on premium products such as Delta One, First Class, Delta Premium Select, and Delta Comfort+, making the company less reliant on customers who are more price sensitive. Premium product revenue in 2024 grew 8% year over year. United pointed out in its fourth-quarter earnings report that premium revenue grew 10% in the quarter on a year-over-year basis.
Sector trends improving United, American, and Delta all trade above their 10-year averages on forward price-to-earnings (P/E), so it's possible investors have already missed the trade. However, these three stocks still only trade between 6.7x and 8.
4x forward earnings, which is rather cheap in a market that has experienced a two-plus-year bull run. With record flights expected this year and perhaps the full return of corporate travel, the airline stocks may yet fly higher. I have questions about whether the premium trend can continue, considering I've never heard anyone tell me they enjoy paying extra for every added feature.
Similar to inflation, consumers have a breaking point where they will stop paying, although the premium trend seems to focus on customers that are price insensitive. Airlines are also cyclical, so a turn in the economy could lead to less travel, but for the time being, it's clear skies ahead..
