Rising 11% so far, the S&P 500 index is off to a high-flying start to 2024.
But some stocks have flown even higher. Delta Air Lines(NYSE: DAL) and HeclaMining(NYSE: HL) have raced 27% and 21% higher, respectively, and analysts think there's room for these stocks to run even higher. Let's see what two Motley Fool contributors think about the analysts' perspectives and whether they agree that the stocks can continue to outperform the market.
Delta Air Lines is transforming its business
Lee Samaha:HSBC recently initiated coverage of Delta Air Lines, giving it a buy rating and a $72.80 price target, representing a 42% premium to the current market price as I write.
Delta is HSBC's preferred airline, and I agree with this thinking. The exciting thing about Delta is not so much a play on mass-market consumer discretionary spending in the travel sector; that role goes to the budget airlines. Instead, Delta is arguably more of a play on higher-income earners' travel spending based on its focus on growing its premium cabin revenue. For example, Delta's share of revenue from the premium cabin was 24% in 2014, then 35% in 2023, and management's long-term goal is to get it to 37%.
In addition, Delta is growing its loyalty-based revenue as its SkyMiles program grows alongside increasing remuneration from its Delta American Express co-branded credit cards. As the company attracts more premium (business and first-class) travelers, it's also attracting more higher-income earners to its co-branded credit cards.
Delta's valuation -- it trades at 7.8 times the midpoint of management's full-year earnings guidance and 9.5 times the midpoint of its free-cash-flow (FCF) guidance -- incorporates a discount for the risk that Delta might miss its earnings estimates and leave its $19.4 billion in debt and finance lease obligations exposed.
That said, Delta's margins, earnings, and FCF continue to grow as commercial aerospace continues to recover, and historically speaking, spending on travel correlates with economic growth. Throw in Delta's exposure to higher-income earners -- management argues that the top 40% of income earners in the U.S. account for 75% of spending on air travel -- and the company looks well placed to deliver on earnings and reduce debt in line with its plans.
Hecla Mining may be losing its luster soon
Scott Levine (HeclaMining): Reversing course from their 13.5% plunge in 2023, shares of precious metals production company Hecla Mining are off to a roaring start in 2024. Canadian Imperial Bank of Commerce (CIBC) analyst Cosmos Chiu doesn't think that the stock's rise is over. On Wednesday, Chiu raised his price target on Hecla stock to $7.50 from $6.75. Based on the stock's closing price of $6.18 last Tuesday, Chiu's price target implies upside of more than 21%. In addition to the price of silver crossing the $30-per-ounce threshold -- something that can motivate investors to drive silver stocks higher -- Chiu predicates the upwardly revised price target on the company's strong first quarter.
Fully ramping up operations at Lucky Friday in the first quarter, Hecla expects the silver asset located in Idaho to be a source of strong free cash flow in 2024, unlike 2023 when it accounted for negative $7 million in free cash flow. Similarly, Greens Creek, the company's core asset, is producing surprisingly well, processing higher-than-expected silver grades. Hecla forecasts 2024 all-in sustaining costs of about $13.93 per silver ounce. Should silver prices remain around $30 per ounce, Hecla will generate a higher silver margin than the $11.57 per ounce it reported in 2023.
While silver prices remain elevated and Hecla forecasts a strong 2024, investors should take Chiu's price target with a grain of salt. Shares are currently changing hands at 27.3 times operating cash flow, which is a premium to their five-year average cash flow multiple of 16.4. Since it seems that the market is already pricing in the expectation that the company will thrive in 2024, it doesn't appear likely that the stock will continue to soar higher even if the company gleams in 2024. Those looking for silver stock exposure, therefore, may want to consider some of the other premier players in the precious metals space.
Are these stocks a buy now?
Savvy investors know the value of consulting various sources before buying new stocks. Smart investors also know that it's unwise to blindly follow the thinking of analysts. With regard to Delta Air Lines and Hecla Mining, for example, it seems that Delta may very well continue to fly higher as HSBC estimates, yet Hecla is already trading at a premium, suggesting Chiu's price target may be too high.
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American Express is an advertising partner of The Ascent, a Motley Fool company. HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines and HSBC Holdings. The Motley Fool has a disclosure policy.
