3 Top Airline Stocks To Watch For Massive Upside Potential
Airline stocks are flying higher as positive vaccine news is feeding hopes of early reopening. The NYSE Arca Airline Index has risen nearly 6% since the start of this week. Last week, the positive clinical data from Pfizer’s (PFE Stock Report) coronavirus vaccine have sent top airline stocks higher, after indicating a 90% efficacy. And this week, it was Moderna’s (MRNA Stock Report) turn, reporting that its mRNA-1273 candidate is 94.5% effective.
Unless you have been living under a rock, you would know top airline stocks have been one of the most heavily battered industries during the coronavirus pandemic. As demand for international travels came to a screeching halt, airline and cruise-line stocks have been struggling to stay afloat. While these travel stocks may be trading at a steep discount, cheap doesn’t necessarily mean it’s a value buy (for now at least). So when there’s news announcing the high efficacy of vaccine candidates, it is understandable that investors have been looking for the best airline stocks to buy.
Airline Stocks Jump On Vaccine News; Can The Rally Continue?
With news of two vaccine candidates demonstrating strong efficacy, many must have breathed a sigh of relief. After all, that could suggest that other vaccine candidates in the pipeline could have a decent chance of being successful as well. That also improves the chance of having at least one vaccine becoming available to the masses.
For these reasons, airline stock investors have all the reasons to be excited. The positive vaccine news could suggest that the pandemic is coming to an end before you know it. But we should take note that it will take some time to distribute the vaccines globally. For investors looking to bet on a rebound in the top airline stocks, patience is key. With all that being said, here is a list of top airline stocks to buy that could be chartered for a rebound.
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Top Airline Stocks To Buy According To Analysts: Southwest Airlines
First, up the list, Southwest Airlines (LUV Stock Report) is worth the attention among potential airline stock investors. While its industry rivals struggle to cut down the flying routes and frequencies, Southwest seizes the opportunities and hunt for potential new markets. The company is reportedly adding service to another popular leisure destination in Florida in 2021, Sarasota Bradenton International Airport.
On Monday, Southwest CEO Gary Kelly confirmed that the airline is looking to acquire a number of “whitetail” planes. These refer to planes that the original buyers are no longer purchasing. Kelly said that these planes would-be replacements for the 249 MAX planes the company has on order, instead of additional orders.
Many are aware that Southwest has one of the strongest balance sheets in the industry at a net cash position. It is able to take advantage of any discounts Boeing might offer to secure the planes. Of course, any expansion involves risk. Although the airline may be a discounter, Southwest’s cost structure is somewhat higher than a number of low-cost rivals. Nevertheless, the airline appears to be taking advantage of its balance sheet to capture a larger market share in the U.S. aviation market while the other major players continue to cut down their spending to protect themselves from bankruptcy threats. And that is good news for LUV stock investors.
Top Airline Stocks To Buy According To Analysts: United Airline Holdings
According to analysts from JP Morgan, United Airlines (UAL Stock Report) is one of the best airline stocks to buy. That is despite recent volatility in the airline industry. You see, analysts have high confidence UAL can endure the current downturn with sufficient liquidity and sees huge potential upside from the current valuation. The positive vaccine news from Moderna and Pfizer bodes well for United’s plan to jumpstart its business. The company is also reportedly planning to launch rapid tests on all of its passengers moving forward. And that could soon become an industry standard.
“These flights are a good proof-of-concept for governments around the world that are considering making testing part of the travel experience,” said Toby Enqvist, chief customer officer for United. “Expanding our testing efforts with pilot programs like this one not only helps guarantee passengers onboard test negative for COVID-19, it also adds another element to our layered approach to safety and demonstrates a way to work within quarantines to key international destinations.”
Of course, it makes sense for investors to celebrate the good news on the medical front. But without actually vaccinating people on a massive scale, recovery is still a tall order. JP Morgan has upgraded the price target for UAL from $44 to $52. But just how long will it take to achieve that 30% upside from its existing value of $40.6 per share? Your guess is as good as mine. After all, we are making a guess based on how quickly domestic and international flights return to their normal loads. And that in turn depends on the severity of the pandemic and how quickly the pharmaceutical giants can roll out their vaccines. Is UAL stock the best bet among its industry peers?
Top Airline Stocks To Buy According To Analysts: Delta Air Lines
Delta Air Lines (DAL Stock Report) is one of the major airlines in the U.S. and is a legacy carrier. With Thanksgiving around the corner, consumers are looking to book with airline companies they think that’s safer to travel with. While some airlines enforced mask-wearing, Delta has gone one step. It is the first airline further to block its middle seats to allow travelers to fly more comfortably. For this reason, Delta could be in a good position to benefit from anxious travelers who wish to practice social distancing in a confined setting.
Admittedly, Delta did not have a good Q3. The company lost $5.4 billion (compared to a profit of $1.5 billion a year ago). The pandemic caused an 83% decline in passengers, which is expected. In tough times like this, investors often look at one aspect of a company. That is its position in terms of liquidity. Delta currently has a massive liquidity position of $21.6 billion. Moreover, decreasing cash burn rates since June allow the company more room to prepare for a passenger surge this holiday season. Additionally, Delta reported that its net cash sales improved throughout the most recent quarter. It rose from the range of $5 million to $10 million per day to approximately $25 million to $30 million at the end of Q3 2020.
The company has also taken numerous cost-cutting initiatives this year. It managed to repay a $3 billion term loan and a $2.6 billion credit facility. This serves to show that Delta is in control of its finances even in trying times. In its Q3 earnings call, company president Glen Hauenstein explained Delta’s strategy moving forward. Hauenstein said, “With a slow and steady build in demand, we are restoring flying to meet our customers’ needs while staying nimble with our capacity in light of COVID-19.” With all this in mind, could DAL stock be worth adding to your portfolio?