Top Airline Stocks To Watch For A Post-Pandemic World
The coronavirus pandemic and border closures have wreaked havoc on airline stocks this year. As you may be wondering, could top airline stocks be ready for takeoff now that we have promising vaccines? While we can’t say the airline industry is out of the woods, investors finally have a glimpse of the light at the end of the tunnel. Positive developments toward a COVID-19 vaccine from Moderna (MRNA Stock Report) and Pfizer (PFE Stock Report) would allow airline companies to ride out of the storm. Sure, the airline companies may face short-term struggles, but many analysts are increasingly optimistic. They expect the battered industry to stage a strong rebound sometime next year.
Now, these airline stocks may still be trading at a discount. So when there’s positive news announcing the high effectiveness of COVID-19 vaccine candidates, you can understand why investors have been on the hunt for the top airline stocks to buy right now. After all, that could suggest that other vaccine candidates in the pipeline have a good chance of success as well.
Airline Stocks Struggle In The Near-Term As COVID-19 Surges
Despite the positive vaccine news, airline stocks have shown weaknesses as we enter the final month of the year. The surging COVID-19 infections are putting many flyers’ holiday plans on hold. So, investors should readjust their expectations on where airline stocks can fly from here. To say that airline stocks will be back to pre-pandemic levels in a couple of months’ time could be overly optimistic.
As indicated from JetBlue Airways’ (JBLU Stock Report) filing on Monday. The airline expects capacity in the last quarter of 2020 to decrease by 45% to 50% year over year. Fourth-quarter revenue could decline by 70%. The company also announced the offering of additional stock. Now, that would certainly dilute existing shareholders. But in the current state, there are not many options available. For investors looking to bet on a rebound in the top airline stocks, patience is key. With all that in mind, here is a list of the best airline stocks to buy that could be set for a rebound.
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Top Airline Stocks To Watch #1: Southwest Airlines
First, up the list, Southwest Airlines (LUV Stock Report) is worth the attention among potential airline stock investors. LUV stock is only down around 14% year to date. That’s quite impressive considering that some of its rivals saw their value slashed by half. The budget airline has also been making headlines in recent weeks by announcing potential new markets, while its competitors have been cutting down flying routes and frequencies. Many experts believe that Southwest is going to come out of this stronger than probably any other airline.
“We are one of just a few airlines in the world that limits the number of seats available for sale to promote distancing onboard our aircraft, and we will continue to do so through November. This practice of effectively keeping middle seats open bridged us from the early days of the pandemic, when we had little knowledge about the behavior of the virus, to now. Today, aligned with science-based findings from trusted medical and aviation organizations, we will resume selling all available seats for travel beginning December 1, 2020,” stated Gary C. Kelly, Chairman, and CEO at Southwest.
Investors like Southwest because its liquidity profile is second to none 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. This is 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 Watch #2: United Airlines
Next up, United Airlines (UAL Stock Report) is another airline stock with positive commentary from analysts. That’s because analysts are optimistic that UAL can weather the current storm with enough liquidity. One of the reasons why analysts love UAL stock is because it is the largest U.S. carrier flying to the Asia Pacific region. And the virus situation appears to be relatively more under control there. This sets the company apart from the rest of its competitors in the U.S. airline industry.
Positive developments on the vaccine front from Moderna and Pfizer are fantastic news for UAL’s plan to jumpstart its business. The company has already begun to execute its plan to launch COVID-19 rapid tests for all passengers moving forward. On November 16th, the company reported that its passengers on a flight from Newark Liberty International Airport to London Heathrow were the first to receive the airline’s free transatlantic COVID-19 testing pilot program. This meant every passenger over the age of two years old and all crew members on the flight were given rapid tests. Everyone on that flight-tested negative prior to taking off.
“These flights are a good proof-of-concept for governments around the world that are considering making testing part of the travel experience,” commented 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.”
Top Airline Stocks To Watch #3: American Airlines
Last on the list, American Airlines (AAL Stock Report) is probably the riskiest airline stock to buy on this list. That’s because the company’s debt levels are at a more unsustainable level compared to Southwest or United. But it is still attractive to some because it is trading at a lower price. The reality is, many investors still judge stocks by their nominal share prices. November has been a great month for airline stocks. AAL stock went up more than 30% in the past month alone.
The company reported its third-quarter earnings in October where the losses were narrower than analysts have estimated. The company reported revenues of $3.2 billion, a 73% drop year-over-year. American Airlines also reported a 59% decrease in total available seat miles. Besides, it saw a net loss of $2.4 billion for the third quarter.
Some analysts may say that serious investors might be better off buying AAL stock when it trades in the 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 translate to greater reward in this case?