Airline Stocks Are Taking Off, Can The Rally Last?
Airline stocks started off the week on a positive note in the global fight against COVID-19. This came after President Trump approved the convalescent plasma therapy. Reports of a potential green light to an experimental vaccine made by AstraZeneca (AZN Stock Report) also boosted sentiments. After the stock market crash in March, many retailers sensed an opportunity to pick up top airline stocks for cheap. If you are one of them, kudos to you. The problem here is, the plot has thickened with much of those gains in June being erased. Now that most of the best airline stocks to watch are trading near the March levels again, would you be tempted to buy at such valuation again?
To combat the novel coronavirus, most top airline stocks have been announcing new safety and cleaning protocols to try to make consumers comfortable with their travels. For instance, airlines like United Airlines Holdings has teamed up with Clorox (CLX Stock Report) to ensure safer travels among passengers. New treatments and vaccines could potentially be ready in a couple of months. Therefore, there’s a high chance that airline stocks could actually recover and start flying sooner than we are expecting.
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Top Airline Stocks To Buy [Or Avoid] Before Friday: American Airlines
The first airline stock on the list is American Airlines. Shares of American Airlines Holdings (AAL Stock Report) jumped more than 10% on Monday. This came after the announcement that the airline has received approval from the Environmental Protection Agency (EPA) to begin a surface coating technology that inhibits the growth of coronavirus for up to seven days. The surface coating goes by the name SurfaceWise2.
It is a product of Texas-based Allied BioScience. According to American Airlines, SurfaceWise2 “is the first-ever long-lasting product to help fight the spread of the novel coronavirus” to receive EPA approval.
The airline reported a $2.7 billion pre-tax loss for the second quarter. The management predicted the third-quarter capacity to fall 60% year over year. Some analysts may say that serious investors might be better off buying AAL stock when it is trading at single digits. While it may be one of the top airline stocks to buy in the U.S., its debt levels are what concerns investors the most. Which makes it a more risky play compared to other airlines. But the question is, do greater risks come with greater reward in this case?
Top Airline Stocks To Buy [Or Avoid] Before Friday: Delta Airlines
Second, on the list, shares of Delta Air Lines (DAL Stock Report) also climbed almost 10%, sharing a similar sentiment from vaccines and drug hopes. This is despite the company reporting the furlough of nearly 2,000 pilots in October unless the government provides a second round of payroll assistance. The news appears to be overshadowed by the improved prospects in the aviation sectors.
The airline industry has been hit hard, and Delta Air is not spared. The industry to date has avoided involuntary layoffs thanks to a provision in the CARES Act stimulus legislation. But the government is drying up soon with the deadline approaching. But with the average daily travel numbers still yet to reach the pre-pandemic levels, investors remain cautious when treading the shares. Though, hopes of vaccines and treatments are pushing the airline stocks higher.
On the other hand, the increasing number of cases are still making investors think twice before boarding the flight. From this week’s rally, it appears that the former carries a higher weight than the latter.
Top Airline Stocks To Buy [Or Avoid] Before Friday: United Airlines Holdings
United Airlines (UAL Stock Report) was the first U.S. airline to take several measures to preserve cash in response to the pandemic. The airline just announced that it is adding flights to Florida this November. The numbers are definitely improving, but not enough to push airlines back into profitability yet. Truth be told, if there’s a rally in the airline industry, UAL stock is going higher. In fact, UAL stock may be the best airline stocks to watch when there’s a rally. Shares of UAL also jumped nearly 10% along with its industry peers.
Any developments that could speed up the introduction of vaccines would drive the restart of airline businesses. New treatments for the virus could also boost demand for flights. However, investors shouldn’t get overly excited about any headlines concerning progress toward a vaccine or treatment for COVID-19. After all, promising developments don’t always lead to cures.
This is true even if the candidate is in its final phase of clinical trials. Of course, it makes sense for investors to celebrate the good news on the medical front. But without an approved vaccine or treatment available in the market yet, recovery is still a tall order.