Time To Add China Southern Airlines To My 50 Stocks Portfolio

I’ve been looking to add shares of China Southern Airlines (ZNH) to my long-term 50 Stocks ever since I saw the newest list of the world’s 20 busiest airports from the Airports Council International on April 6. Atlanta’s Hartsfield-Jackson International held onto its No. 1 slot. But 11 of the 20 airports on the list were in Asia–including Beijing (No. 2), Tokyo (No. 3), Hong Kong (No. 8), Shanghai (No. 9), Guangzhou (No. 13), Delhi (No. 16), Jakarta (No. 17), Singapore (No. 18) and Inchon (No. 19).
You might know that China Southern is the largest airline in China. But I bet you didn’t know that it has the largest fleet (702 planes) of any Asian airline.

On April 27, for the first quarter China Southern posted a 64% year over year jump in net profits. That follows on a 17% gain in profit in 2017. Both the most recent quarterly results and the 2017 numbers have been helped by a stronger yuan–up 3.7%in the first quarter of 2017–that has allowed the airline to cut financing costs. (The airline uses dollar-denominated debt to finance aircraft purchases.)

The stock is up 2.70% today to $52.44 as of 3:30 p.m. New York time, finishing off what has been a strong week. But thanks to the big sell off in Shanghai, you can still buy the shares well below the 52-week and all time high of $70.52 set back on February 26, 2018. In recent trading the stock has rebounded strongly from a low of $46.50 after hitting its 200-day moving average of $46.94 on April 20.

And here are the numbers for the simple case for putting this stock in my long-term 50 Stocks Portfolio. The average Chinese took only 0.3 trips a year in 2014. That’s below the per capita number of 1.2 trips in Europe in that year and 1.6 trips per capita in North America. In August America Airlines Group (AAL) invested $200 millions in China Southern. The logic on the U.S. end of the deal is pretty obvious: American is looking to expand its share of the market between the U.S. and China. On the China Southern end, the airline is looking to break out further onto the global stage and it’s hoping that the partnership with American Airlines will help it add the systems and skills it needs to expand into the growing international traffic between China and the rest of Asia and Europe.

The stock pays a 1.43% dividend and trades at a price of earnings ratio of 10.76.