By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory, 3/23/09 Sign up for free Cabot Wealth Advisory e-newsletter
Allegiant Travel (ALGT) is a budget airline focused like a laser on the price-sensitive vacationer headed for California, Las Vegas, Phoenix, Florida or South Carolina. Now, mention airlines to most investors today, and they'll say, "No thanks." Everyone knows the airlines are in rough shape. Demand has fallen off the cliff. All the big guys are cutting flights, mothballing planes in the desert, and offering rock-bottom fares to fill the seats in the planes still flying.
But that's exactly why now might be the best time to invest in an airline! So let's look at Allegiant.
Headquartered in Las Vegas, the airline was founded in 1997. It's grown revenues every year of this decade, and in the fourth quarter of 2008, when every major airline was crying its eyes out, Allegiant's revenues even grew 21% from the year before to $122 million. Perhaps more impressively, it even saw revenues grow from the third quarter to the fourth quarter!
Most impressively, its after-tax profit margin was a plump 14.9%!
So how does Allegiant do it? It flies from small cities to those vacation spots, so fees are lower at one end. Competition is lower too. It flies only MD80s, thus minimizing complexity. And it partners with hotels, vacation planners, car rental firms and vacation planners to offer low-cost package deals.
It's a classic growth story; the little upstart, with bare-bones overhead, coming in to steal business from the big old companies who simply have too much overhead and can't get their costs down to compete.
Also, the fact that the stock is young and little-known means it's much more sensitive to potential buying power than potential selling power. At last count, the stock was owned by only 57 mutual finds, while Southwest (LUV) was owned by 295 and Delta (DAL) was owned by 198.
The chart is the main reason the stock came to our attention in the first place, and here's what we see today. ALGT came public in late 2006 at 24, peaked at 39 in late 2007 and bottomed at 16 in July 2008, four months before the market crash. It then ran all the way up to 49 at the end of 2008, and since then it's been digesting that gain. Most recently, it's been building a base at 40, and if you like the story, you could nibble on a few shares here.
Editor's Note: Since the last bear market bottom—way back in March 2003, exactly six years ago—the S&P 500 is down 18%, and the Nasdaq has also lost money. But Cabot Market Letter, our flagship investment advisory, has nearly doubled subscribers' money (up 95%) during this time! Editor Michael Cintolo does it with spot-on market timing, an eye for finding the very best leading stocks, and a set of proven rules and tools. If you'd like to follow Mike's proven program, sign up here: Information on Cabot Market Letter
Timothy Lutts
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
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