Because developed market airline stocks have traditionally
underperformed other sectors, investors frequently overlook
emerging market counterparts -- such as Panamanian based
[caption id="attachment_67305" align="alignright" width="300"
caption="COPA's stock is really taking off"]
Given the profitability of some firms in the sector, such
dogmatic avoidance could be a mistake for investors seeking
lucrative returns. One of the best emerging market airline stocks
is COPA (
COPA originally ferried passengers to and from Panama City. Over
the past few years however, it has evolved into an airline
connecting passengers all over North, Central, and South
Like Panama has for decades, COPA
takes advantage of its fortuitous geographical
by exploiting the emerging trend of increased travel between North
and South America. A decade ago, the vast majority of North-South
American traffic flowed from South American capitals and major
economic centers to only a couple of American cities -- namely,
Miami and New York. Now as South Americans,
and in particular Brazilians
, become increasingly wealthy, second-tier cities in both North and
South America are seeing a substantial rise in traffic abroad.
COPA is able to make the most of this trend because of its fleet
of fuel-efficient narrow-body aircraft. Every major city in North
and South America is within eight hours of Panama City, allowing
COPA to fly to destinations that other airlines can't because of
logistical difficulties. By offering one-stop, convenient service
to cities as diverse as Porto Alegre, Orlando, Havana, Cordoba, and
Las Vegas, COPA has found a very profitable niche.
Because of the way that hub synergies function, COPA will easily
be able to increase its number of destinations to even more
second-tier cities, even if origin and destination (O&D) demand
to Panama City itself is negligible.
In addition to its advantageous geography, the company benefits
from a cheaper labor structure than developed market airlines.
As with all airlines, oil is always a factor in COPA's stock
performance. While this important facet of the company's finances
should not be overlooked, the company engages in savvy fuel hedges,
and with oil potentially dropping further on the back of global
economic woes, the stock could be even cheaper than it already
And make no mistake about it, COPA is cheap here. With a current
P/E of 10.7 and a forward P/E of 7.9, it is priced like a developed
market airline even though it benefits from emerging market levels
of growth. You could consider starting a position in COPA to take
advantage of the firm's solid fundamentals.