Is It Time To Find Airline Stocks To Buy?
The coronavirus outbreak has crippled airline stocks, with consequences that have yet to be fully realized. The airline industry is probably one of the most global industries, providing livelihoods to tens of millions of people. Some draw the analogy that the airline industry is the central nervous system of international business and leisure. I couldn’t agree more. Global airlines definitely need the patience and resilience to increase the likelihood that they will be out of the woods in the next couple of years.
The Question is, Should I Buy Airline Stocks Now?
With many airlines on the verge of bankruptcy, are there any worthy airline stocks to buy amid the current pandemic? While most investors and day traders shy away from airline stocks, Warren Buffett has been making HUGE bets in the airline industry. The intelligent investor does not rule out the possibility of owning an entire airline. Yes you heard that right!
Looking back at the great financial crisis of 2008, Berkshire Hathaway (BRK.A Stock Report) (BRK.B) offered some priceless insights on value investing. The world’s third-largest public company used the financial crisis as an opportunity to initiate large investments in American banks. This was the sector that was the most badly hit at that time.
The airline industry today is akin to the banking industry in 2008. We believe that the airline industry will eventually recover. It is just a matter of time before we can return to 2019 levels. If we are going to hunt for cheap stocks to buy now, here are 3 airline stocks investors might want to take a look at.
Airline Stocks To Buy [Or Sell] #1: Boeing Company
I know what you are thinking. Yes, this isn’t an airline stock. But we have included it on the list of stocks to watch given that the aircraft manufacturer is driven by similar factors as airlines. The pandemic is affecting every aspect of Boeing’s (BA Stock Report) business, from customer demand to production continuity and supply chain stability.
However, the embattled plane maker grabbed the spotlight by pulling off a $25 billion corporate bond financing. This bond could ensure the survival of the company, and therefore we were not surprised to see the rally in the BA Stock price on Thursday.
Should Investors Buy Boeing Stock Now?
This huge financing comes a day after Boeing reported a painful quarter in their corporate earnings. We have seen great volatility in BA stock prices this month. The outlook for Boeing is definitely not rosy, and the company could be facing losses for the coming decade in terms of commercial plane sales. Investors would be well-advised not to buy into the rally, as the valuation doesn’t seem too attractive yet.
Airline Stocks To Buy [Or Sell] #2: United Airlines Holdings
Like many other airline companies, which enjoyed great success in the past decade, United Airlines Holdings (UAL Stock Report) was up more than 1000% in that period. That was thanks to the booming tourism industry. However, since the beginning of January, UAL Stock has suffered a decline of more than 60%. That made it one of the cheapest airline stocks to buy now.
The airline surprised Wall Street’s analysts with a narrower quarterly loss as it attempted to manage the most disruptive global crisis in modern aviation history.
United Airlines was the first U.S. airline to take several measures to preserve cash in response to the pandemic. While it can be a painful decision to offer unpaid leaves to employees, the measure is deemed necessary to ensure the survival and long term success of the airline. With so much pessimism surrounding airline stocks, industry executives remain hopeful for a rebound in the coming few years.
“When demand returns, we believe we’ll be positioned to bounce back strongly and quickly.”
Oscar Munoz, Chief Executive of United Airlines Holdings
Despite reporting narrower quarterly loss than expected, investors may still be puzzled by the extent of the drop in UAL stock price. This is likely due to the equity dilution from the company’s recent stock sale which raised over $1 billion. Nevertheless, one should not be discouraged as the funds raised will bolster United’s financial position.
Best Airline Stocks To Buy [Or Sell] #3: Delta Air Lines
Not one airline avoided this downfall in the aviation industry. Delta Air (DAL Stock Report) is no exception. It expects revenue to plunge by about 90% this quarter, with bigger losses expected in the coming quarter.
Following the footsteps of other major airlines, Delta aggressively reduced its operating and fixed costs to ensure its survival. By reducing its cash burn from $100 million a day to $50 million a day, there will be significantly lower financial pressure on the company.
Is Mandating Face Masks Among Passengers A Key To Revive Airline Stocks?
Delta Air Lines and United Airlines mandated that passengers must wear face masks on board of planes amid the current pandemic. Could this solution improve ticket sales in the airline industry? Possibly. But there’s a limitation to that, with social distancing rules. Airlines will not be able to fit as many passengers as they used to because some seats will be left empty.
Waiting For The Storm To Be Over
With plenty of financing options, many analysts believe that the airline industry will be able to bounce back stronger. The question is, when? Is it a good time to buy airline stocks now? In the end, it depends on your investment horizon and the strategy you adopt with airline stocks.
If you have a medium to long investment horizon of perhaps 5-10 years, you may well see the current prices of airline stocks to be a once in a decade opportunity. If you are a day trader however and would like to buy into a rally, it all comes to timing. For some investors, they prefer to take a wait and see approach to monitor how the pandemic plays out. After all, even if lockdown restrictions are lifted tomorrow, do we expect everyone to start flying again right away?
