Airline stocks are among the best picks in the market right now, according to a new note from Ari Wald, head of technical analysis at Oppenheimer.
As the Dow Jones transportation average hits new highs and airline stocks break out of yearslong technical resistance, Wald said such bullish activity reaffirms "the 'Dow Theory' buy signal that's been in place since last November."
According to one facet of the Dow Theory, rallying transportation (historically, rails) stocks point to further upside for the broader market given the wide range of goods carried by transports.
Within the transport group, Wald is particularly bullish on airline stocks, the largest of which include American Airlines, Southwest Airlines and Delta Air Lines, which have advanced 11 percent, 25 percent and 11 percent year to date, respectively.
Specifically, Wald noted that shares of Delta appear to be breaking out of "very important resistance" at the $53 mark; the carrier was trading at around $54 per share on Tuesday.
Overall, the industry is moving through some very important decadeslong resistance levels "and still a far cry from where it was in the late '90s, so still a significant underperformer over that 20-plus year period," he said Monday on CNBC's "Trading Nation." Furthermore, the group is trading at a relatively low multiple, Wald pointed out, and deemed it a good value combined with signs of healthy momentum.
When it comes to earnings, the skies might not look quite as clear.
The airline industry is the only group within transports expected to post contracting earnings, according to S&P Global estimates. Very few categories across the entire S&P 500 are projected to have lower year-over-year earnings. On the bright side, expected losses are indeed anticipated to abate, said S&P Global portfolio manager Erin Gibbs. Initially S&P Global was forecasting a 9 percent decline for the airlines; that estimate has been revised up to a 4 percent decline.
"The year is definitely looking better; maybe they'll even make the same amount of money by the time we finish the year if things keep improving and oil stays low," Gibbs said, adding that she prefers U.S. airlines to some of the international carriers.
"They are trading low, relative to their historical price range, but we still see limited upside target prices, with only about an average of 8 percent above; so again I'd like to recommend investors be very picky about airlines, particularly those large-cap U.S. airlines are some of our favorites," she said Monday on "Trading Nation."
A filing in May revealed that influential investor Warren Buffett's conglomerate Berkshire Hathaway owned millions of shares of American Airlines, United Continental and Southwest Airlines. In June, it was disclosed in a filing with the Securities and Exchange Commission that the holdings had massively paid off.