Today’s news: Alexion Pharmaceuticals (ALXN) begins run-up and moves from Buy to Strong Buy; Commercial Metals (CMC) continues run-up; Delta Air Lines (DAL) surges on good news.
Alexion Pharmaceuticals (ALXN) appears to have begun a breakout from a trading range yesterday. I’m moving the stock from Buy to Strong Buy. Traders and growth stock investors should buy now. Strong Buy.
Commercial Metals (CMC – yield 2.7%) broke out of a three-month trading range, rising 4.26% yesterday. My guess is that CMC could reasonably rise to 20.5 before stopping. Traders and risk-tolerant growth and income investors should buy now. Strong Buy.
Delta Air Lines (DAL – yield 2.5%) reported lots of good news this week. Management raised first-quarter revenue and earnings guidance to Wall Street, now expecting $0.85-$0.95 EPS vs. their previous forecast of $0.70-$0.90. The company also expressed good things about first-quarter capacity and revenue per available seat mile (RASM). That’s significant because many investors were worried that airlines’ first-quarter results would be disappointing in light of business interruptions associated with the government shutdown and the polar vortex weather pattern. Delta also renewed a longstanding relationship with American Express (AXP) by signing a new 10-year contract.
Delta repurchased $1.3 billion of their stock during the first quarter, which caused Berkshire Hathaway’s (BRK) stake in DAL to exceed 10%. (See the CNBC video that I referenced in this week’s April issue.)
In addition, media pundits are speculating that Warren Buffett might buy Delta Air Lines – the entire company. In his role as CEO of Berkshire Hathaway (BRK), Buffett owns approximately 10% and 18% of DAL and AXP shares. Buffett has clearly stated to investment markets that he’d like to make a major purchase, i.e. buy an entire company; he has the cash to do it, and he loves airlines, with large positions in four major airlines, including Southwest Airlines (LUV). As you decide whether to buy or sell DAL, always keep in mind that rumors will swirl on this topic until Berkshire Hathaway finally announces its next major M&A plan.
You might recall that airline stocks exhibited strength after the October stock market correction, while most other industries’ stocks languished. Then a second, late-December correction arrived, grounding airline stocks and hammering just about all other U.S. stocks. Since the market was exceedingly bullish on airline stocks four months ago, DAL and its peers could regain a market leadership position this spring.
The stock is up 16% in the last seven trading days, closing yesterday at 57 in a race toward its December high of 60. As a result of this week’s good news, Cowen & Co. and Stifel raised their price targets on DAL to 67 and 85, respectively.
DAL remains an undervalued growth & income stock. I expect the stock to pause at 60, if not sooner, and to then pull back and rest before advancing further. In my opinion, the only people who should be selling are experienced traders who might sell near 60 and then be ready to repurchase on a brief pullback. Everybody else should hold DAL longer term, and consider buying more shares at any near-term price. Presuming no disruptions in the broader stock market, I would expect DAL to surpass 60 sometime in the next few months. Strong Buy.