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On Thursday, the U.S. stock market fell into "correction" territory for the first time in two years. Signs of a tightening job market and rising interest rates appear to have sparked this crisis of confidence, as more investors are wondering whether stocks have become overvalued.
However, some stocks were already quite cheap before the recent market sell-off and are now even cheaper. Hawaiian Holdings (NASDAQ: HA) and JetBlue Airways (NASDAQ: JBLU) look particularly appealing because they're both well-positioned to capitalize on the current market turmoil by ramping up share buybacks.
Hawaiian Holdings stock is primed to bounce back. Image source: Hawaiian Holdings.
Two cheap stocks in an expensive market
Right now, the S&P 500 trades for about 18 times forward earnings. That's expensive by historical standards. The typical market multiple is less than 15 times earnings.
By contrast, JetBlue Airways stock trades for around 10 times forward earnings, based on the average 2018 analyst earnings estimate of $1.92. These estimates have been creeping up recently after JetBlue handily beat its guidance for revenue per available seat mile (RASM) last quarter, and forecast that RASM will rise 2.5%-5.5% in the first quarter.
Hawaiian Holdings stock is even cheaper. It currently trades for just seven times forward earnings. Furthermore, analysts' 2018 earnings estimates have surged by more than 10% over the past month. In conjunction with Hawaiian's recent fourth-quarter earnings report, management stated that unit costs will rise less than previously expected in 2018. Meanwhile, RASM continues to increase, even though Hawaiian Airlines faces an uptick in competition on routes between the West Coast and Hawaii.
Additionally, 2018 shouldn't represent "peak earnings" for either company. JetBlue has massive growth opportunities in Boston and Fort Lauderdale, while its Mint premium transcontinental service continues to win over travelers. It's also analyzing the possibility of entering the transatlantic market with new, longer-range planes.
JetBlue Airways has substantial long-term growth potential. Image source: JetBlue Airways.
Hawaiian Airlines also has lots of room to expand, especially in Asia, where it will benefit from growing travel demand. In the U.S., it has opportunities to use smaller aircraft to boost the profitability of some of its existing routes and tap into midsize markets that it hasn't been able to serve previously.
Rising interest rates won't hurt these airlines
JetBlue Airways and Hawaiian Holdings are also much less reliant on debt than many of their peers. As a result, higher interest rates won't have much of a direct impact on either one.