Alaska Air Group ($ALK) is well run and cheap

Lots of value investors find their own personal Waterloo in airline stocks (Buffett famously dumps money in the sector every decade or so). That might make the industry sound like a bad bet. Regardless, when I kick airlines out of my backtests, they tend to underperform, so I keep the industry in, and buy them when they’re stupid cheap. Not coincidentally, Alaska Air Group, Inc. (ALK) is currently in the Large Cap 1000 screener. At $74.77 it’s got a $9.8 billion market cap, a $9.2 billion enterprise value, operating income over the last twelve months of $1 billion, putting it on an acquirer’s multiple of 8.95x. It has a PE of 14.5 and a tiny 3.8 percent FCF/EV yield. Airlines are sensitive to oil prices, competition and hide some debt in their airline leases, so they’re tougher than most. Only buy ’em when they’re cheap. The Motley Fool’s Asit Sharma has some interesting insight into ALK:

Consider Alaska Air Group as a core holding for your airlines portfolio. The company is attractively valued at roughly 10 times forward earnings. It’s also one of the best-run domestic carriers, leading major airlines in profit margin, safety, and on-time performance. Alaska Air enjoys status as one of just a handful of airlines worldwide to carry an investment-grade credit rating.

ALASKA AIRL IS ONE OF THE BEST-RUN U.S. CARRIERS.

Alaska Air has weathered Delta‘s incursion into its home base of Seattle by opening up new routes eastward, and upgrading its fleet of Boeing 737-400s to the more efficient 737-900ER (Extended Range) aircraft. Despite an onslaught of new flights added by its mammoth competitor over the last two years, Alaska continues to post record revenue and profits. While Delta will inevitably trim off some of Alaska’s business, the company is more than sound enough to absorb Delta’s challenges over the long term. Moreover, some investor skepticism is already priced into the stock.

Alaska is one of the better positioned airlines to take advantage of low oil prices. The company employs a very simple hedging practice, purchasing call options to offset upward trends in jet fuel prices. By avoiding more complex strategies designed to lock in pricing, Alaska fully realizes the benefit when oil prices decline, while generating minimal cost to protect against upside movements.

All of the advantages above are perpetuated by a workforce that participates in a variable incentive pay plan aligned to company goals. In recent years, Alaska Air employees have received an annual bonus equal to one month’s compensation — that’s a significant assurance to investors who wonder if the company will continue to operate at the peak level of the last few years.

Read more: The 3 Best Airline Stocks for Your Portfolio