Taking a Flyer on an Airline Stock

U.S. stock markets ended the holiday-shortened week higher with the Dow Jones up 0.31%, the S&P 500 rising 0.24% and the NASDAQ climbing 0.35%. The MCSI Emerging Markets Index gained 0.79%.

Your sole position in ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA) gained 4.67%, crossed back above its 50-day moving average and is now back to a BUY.

With the Fed possibly hiking interest rates, markets are likely to continue to trade nervously this week.

At the same time, with the stock market slowly steadying after the August sell-off, it’s time to start nibbling at some growth stocks again.

That’s because these are the types of stocks set to bounce the most strongly as the overall market recovers.

This week’s Bull Market Alert recommendation — Alaska Air (ALK) — is just such a stock.

Here’s why I expect it to rise strongly in the weeks ahead.

With the market in a correction, many growth stocks are trading below their 50-day moving averages.

At times like these, it’s good to look for stocks and sectors with strong relative strength — that is, stocks that suffered relatively less in the sell-off and are on their way to recovering strongly.

One sector that held up relatively well is the airline industry group. And within that group, Alaska Air (ALK) has been a star.

Shares hit a high of $82.15 on Aug. 18 before plummeting to $58.92 about a week later. But the stock has now recovered almost all of its losses and is now trading back above its 50-day moving average and near its highs.

Even with the earnings drought that has weighed on the S&P 500 this year, Alaska Air’s fundamentals are quite strong as well. Earnings per share are expected to grow at 51% this coming quarter when the company announces earnings on Oct. 21. That will be continuing a strong upward trend in earnings over the past three years, which helps explains why the stock is up 37% year to date.

Alaska Air also recently unveiled impressive traffic results for August 2015. Revenue passenger miles (RPMs) came in at 3.09 billion, reflecting a year-over-year improvement of 7%. Consolidated capacity (or available seat miles/ASMs) also improved 7.7% to 3.57 billion.

Finally, Alaska Air is also in a strong sector. S&P Capital expects record profitability for airlines this year as revenue grows and oil prices remain low. And this rising tide will continue to lift Alaska Air as well.

So buy Alaska Air (ALK) at market today and place your stop at $72.00. I’m holding off on recommending options on this position for now.

Portfolio Update

ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA) rose 4.67%. RBC Capital Markets initiated coverage of ULTA on Thursday, setting a price target of $168 and a rating of “Sector Perform.” ULTA also rose above its 50-day moving average last week in quite a bullish manner to become a BUY.

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