Macro

S&P 500 Peaks, Yet Delta, United, and WDC Remain Bargains

S&P 500 and Nasdaq hit record highs, with undervalued stocks like Delta and Western Digital poised for growth.

By Bill Bullington

5/15, 12:34 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Delta Air Lines, Inc.
General Motors Company
United Airlines Holdings, Inc.
Western Digital Corporation
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Key Takeaway

  • Despite the S&P 500 reaching all-time highs, stocks like Delta Air Lines (DAL) and United Airlines (UAL) remain "cheap" with over 30% YTD gains and significant upside potential.
  • Western Digital (WDC) leads with a 43% YTD increase, analysts see an additional ~15.2% growth; General Motors (GM) noted for its low P/E ratio and strong market performance.
  • Analysts highlight opportunities in airlines for recovery in corporate travel and international vacations, and GM's potential in the electric vehicle market.

Market Hits Record Highs

The S&P 500 and Nasdaq Composite surged to all-time highs, buoyed by a lighter-than-expected April consumer inflation report. This uplift in investor sentiment has propelled the broader market, with the Dow Jones Industrial Average also seeing significant gains. The S&P 500 and Dow have each risen over 5% this month, while the Nasdaq has advanced about 6.5%. This rally underscores the market's resilience and optimism among investors, despite concerns over inflation and economic growth.

Hidden Gems in the Rally

Despite the broader market's ascent to record levels, several stocks remain undervalued and poised for growth. Utilizing the CNBC Pro Stock Screener Tool, stocks such as Arch Capital Group, Allstate, Delta Air Lines, Diamondback Energy, General Motors, Hasbro, Targa Resources, United Airlines Holdings, and Western Digital have been identified as top performers. These stocks not only have shown significant year-to-date performance but also boast lower valuations than the broader market, with forward price-to-earnings ratios of less than 21 and price targets suggesting an upside of 10% or more.

Spotlight on Airlines and Tech

Airlines Delta Air Lines and United Airlines Holdings stand out with gains exceeding 30% this year, with analysts predicting substantial upside potential. HSBC analyst Achal Kumar highlights Delta's strong competitive positioning and high market share at its key hubs, alongside a robust penetration in the premium traffic segment. Similarly, Western Digital has shown remarkable growth, with shares advancing 43% year to date. Analysts forecast an additional 15.2% growth over the next 12 months, driven by stronger pricing for semiconductors.

Street Views

  • Achal Kumar, HSBC (Bullish on Delta Air Lines):

    "Delta has the strongest competitive positioning at all of its key hubs and holds almost a 70-75% market share at its top 6 hubs, where it has deployed more than 50% of its capacity. It has the highest penetration in the premium traffic segment among the three U.S. full-service carriers."

  • Mark Miller, Benchmark (Bullish on Western Digital):

    "Stronger pricing for semiconductors should fuel another rally for the stock."