In his recent annual letter to fund partners, Kase Capital’s Whitney Tilson disclosed the fund’s top holdings going into 2015. Both JetBlue Airways Corp (NASDAQ: JBLU) and Delta Air Lines Inc (NYSE: DAL) are among the Kase Fund’s top 10 holdings. In the letter, Tilson specifically addressed his bullish stance on the airline industry.
Consolidation is key
According to Tilson, the massive consolidation in the airline space has created an incredible value opportunity for investors. Tilson compares the value creation resulting from airline consolidation to similar scenarios that played out in recent years in the semiconductor and car rental spaces.
Strong fundamentals
As a result of the consolidation, the fundamentals in the airline industry are in great shape. Tilson points out seven specific fundamental conditions that currently stand out to him:
1. Strong pricing
2. High fees
3. Full planes
4. Restrained capacity growth
5. Solid labor relations
6. Cheap fuel
7. Capital return programs at each of the four major carriers
Cheap stocks
Despite all of these strong fundamentals, Tilson believes that airline stocks remain undervalued, pointing out that JetBlue, Delta and American Airlines Group Inc (NYES: AAL) trade at 2015 estimated earnings multiples of only 10.2x, 9.3x and 4.7x respectively.