WEBVTT - Frank Holmes: Airlines Are Cheapest Industry in S&P 500 (Audio)

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<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pellett. Records today for the down Jones Industrial

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<v Speaker 1>Average and the SMP five hundred index SMP five hundred,

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<v Speaker 1>marking its longest winning streaking four months of speculation grows

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<v Speaker 1>for looser global monetary policies a while a better than

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<v Speaker 1>forecast profit report from JP Morgan Chase boosted optimism for

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<v Speaker 1>bank earnings SMP up eleven to sixty three. That is

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<v Speaker 1>a gain of five tenths of one percent. Nas stank

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<v Speaker 1>up twenty eight, a gain of six tenths of one percent.

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<v Speaker 1>Down industrials up one thirty four, a gain of seven

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<v Speaker 1>tenths of one percent. The tenure down eighteen thirty seconds

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<v Speaker 1>yield one point five three percent, Gold down nine thirteen

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<v Speaker 1>thirty four, a drop there of seven tenths of one percent.

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<v Speaker 1>And crude oil West Texas Intermediate Crude up one points

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<v Speaker 1>ex percent up to seventy four cents nine for barrel

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<v Speaker 1>of w T. I I'm Charlie Pellett. That's a Bloomberg

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<v Speaker 1>Business Flash. This is taking stock with Kathleen Hayes and

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<v Speaker 1>Pin Fox on Bloomberg Radio. Airlines stocks Delta Airlines, for example,

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<v Speaker 1>saying that it would seek to boost the key passenger

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<v Speaker 1>revenue yardstick because they're gonna reign in an expansion in

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<v Speaker 1>seats that was set for later this year. That capacity

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<v Speaker 1>would only increase about one percent in the fourth quarter.

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<v Speaker 1>Investors like the news. The shares of Delta Airlines higher

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<v Speaker 1>today by more than three and a half percent. Here

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<v Speaker 1>to tell us more about airline investing, Frank Collins. He

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<v Speaker 1>is the chief executive and the chief investment officer of

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<v Speaker 1>US Global Investors. Joining us from San Antonio, Texas. Frank

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<v Speaker 1>always a pleasure tell us about jets, tell us about

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<v Speaker 1>US Global Jets. That's the e t F. And what

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<v Speaker 1>the news. The news today from Delta means, well, it's good.

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<v Speaker 1>It's good news because all the negative going into the

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<v Speaker 1>bricks that going into the quarter, and it was very

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<v Speaker 1>negative on global growth. And we saw that the airlines

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<v Speaker 1>were sold down to such an extremely low level that

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<v Speaker 1>companies like American Airlines then were trading at three times

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<v Speaker 1>earnings three times and the industry itself trades it over

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<v Speaker 1>six times, and when you look at transports, they traded

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<v Speaker 1>eighteen and so the negative sentiments seems to now getting

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<v Speaker 1>behind us, and they're starting to see these stocks have

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<v Speaker 1>big pops, especially after Deutsche Bank made a call that

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<v Speaker 1>that they believe that this is the bottom and things

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<v Speaker 1>will trade higher. All right, So this is what Deutsche

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<v Speaker 1>Bank says. But what does Frank Colin say, because Delta

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<v Speaker 1>said it's slowing the expansion of flights and seats because

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<v Speaker 1>it wants to deal with the potential slide and passenger revenue. Well,

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<v Speaker 1>Delta's concerned regarding particular Brickxit that the flights the British pound,

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<v Speaker 1>that the volatility of the British pound has had a

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<v Speaker 1>big impact. Uh, and so the bri has come to

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<v Speaker 1>America now for holidays that they're gonna have going to Europe,

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<v Speaker 1>and that sort of travel is concerned, and so for

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<v Speaker 1>going into the winter, they're going to cut that path

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<v Speaker 1>route by six percent. However, they've got great growth in

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<v Speaker 1>Asia and there's robust activity for all the big three,

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<v Speaker 1>in particular United American and Delta in their Asian travel.

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<v Speaker 1>So is it possible that the exchange Traded Fund will

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<v Speaker 1>add non US flag carriers, we do, you know, that's

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<v Speaker 1>a good question. Um it's dominated by four of them,

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<v Speaker 1>that Southwest, Delta, American and United about of the index

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<v Speaker 1>and every balance of the quarter. And then we own

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<v Speaker 1>other names based on who has the highest cask forward

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<v Speaker 1>turn investor capital and revenue per share, and that would

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<v Speaker 1>be Jet Blue, it would be Hawaiian Air, et cetera.

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<v Speaker 1>And then we have twenties foreign names at one percent

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<v Speaker 1>each and that's helpers mitigee this currency volatility and that

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<v Speaker 1>rebounces one supquarter. But it's all based on key metrics

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<v Speaker 1>that value these stocks. So it's a smart betas are

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<v Speaker 1>rules based thought process well. I note for example of

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<v Speaker 1>that Quantas Airways is in the jets et f as

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<v Speaker 1>well as China, Southern Airlines, Air Canada as well as

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<v Speaker 1>Air China and WestJet correct in in order of when

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<v Speaker 1>you look at the whole global scene, those foreign holdings

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<v Speaker 1>have the highest cast forward turns invested capital on a

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<v Speaker 1>relative basis and the highest UMU. The other the key

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<v Speaker 1>factors that revenue perceed mile revenue proceed mile. This is

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<v Speaker 1>the one of the industry standards as far as UH

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<v Speaker 1>input costs go to airlines. It's got to be jet

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<v Speaker 1>fuel prices, right. It's a key component, there's no doubt

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<v Speaker 1>about it. And the other part is it moves with

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<v Speaker 1>the stock market. It is a greater beta in the

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<v Speaker 1>stock market. So the stock markets up one percent, this

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<v Speaker 1>category is up one and a half percent, Marcus off

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<v Speaker 1>one percent, it's down one and a half percent. Uh

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<v Speaker 1>And I think the longer they go was showing these

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<v Speaker 1>uh inexpensive pe ratios and rising dividends, and the dividend

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<v Speaker 1>increased last year was almost a hundred percent increase in dividends.

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<v Speaker 1>Uh And and they've been buying back their stock. I

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<v Speaker 1>think that they're going to go to that re rating.

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<v Speaker 1>And that's always been the biggest money in the capital

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<v Speaker 1>markets to him, is that when people will pay going

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<v Speaker 1>from six dollars for that same dollars of earnings to

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<v Speaker 1>twelve dollars, or they turn and get worried about the

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<v Speaker 1>stock market and they just pay a less pe ratio

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<v Speaker 1>for that same dollar earnings. Uh. The airline industry as

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<v Speaker 1>a whole is the least expensive out of the approximately

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<v Speaker 1>hundred industries that make up the SMP five stocks. Frank,

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<v Speaker 1>I know you've been paying attention to the news out

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<v Speaker 1>of Farnborough, the Farnborough Air Show, which has just concluded

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<v Speaker 1>orders for Boeing and Airbus commercial aircraft that came through

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<v Speaker 1>from Farnborough. We're down about compared to last year's Paris

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<v Speaker 1>Air Show. Is that of concern? No, I don't really

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<v Speaker 1>think it's a concern. Um that I just don't feel

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<v Speaker 1>that's a big concern. Why is that Because if they're

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<v Speaker 1>not ordering aircraft, does that indicate that maybe there is

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<v Speaker 1>a glut of aircraft on the market. No, there's no glut.

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<v Speaker 1>That that's a good question. In fact, Boeing is ten

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<v Speaker 1>years backlog and when you fly you can still see that.

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<v Speaker 1>I still because I'm a rapid fly millions of miles. Uh.

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<v Speaker 1>A lot of these planes are not up to speed

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<v Speaker 1>and so there's a big upgrade that needs to take place.

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<v Speaker 1>And uh, I think that some of that slow down

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<v Speaker 1>those orders would be coming of the Middle East and

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<v Speaker 1>out of Latin America, but the new order is coming

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<v Speaker 1>out of the US. They remain strong and just finally

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<v Speaker 1>frank new efficient engines, whether it's the Neo from air

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<v Speaker 1>Bus or on the seven three seven or even the

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<v Speaker 1>new geared turbo fan from ut X. Is that going

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<v Speaker 1>to change the market profile of these companies. No, but

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<v Speaker 1>I'm so impressed, Pim. You just really get into those

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<v Speaker 1>great details of these engines and uh, you know, it

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<v Speaker 1>is fuel efficiencies everywhere. Uh, and I think it's a

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<v Speaker 1>key component for upgrading on these airlines. So that's just

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<v Speaker 1>gonna be a good business model for both Bowling UH

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<v Speaker 1>and Airbus and the airlines. Thanks very much for spending

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<v Speaker 1>time with us. Is Frank Holmes. He is the chief

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<v Speaker 1>executive and the chief investment officer for US Global Investors,

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<v Speaker 1>joining US from San Antonio, Texas. Thanks for taking stock.

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<v Speaker 1>I'm pim Fox. This is Bloomberg coming up, Bloomberg Law,

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<v Speaker 1>a clash between Alphabet, parent company of Google and the

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<v Speaker 1>European Union and the European Union's new antitrust commissioner. That's

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<v Speaker 1>all coming up next.