Airlines: A value play?

February 15, 20211 Comment

With vaccines quickly rolling out in the rest of the world (Canada aside, thanks to government stumbling), I get the occasional question regarding sectors that might benefit the most in a “re-opening” of the economy. Certainly, the metals, energy and value stocks that I recommended last year have performed well. It seems to indicate that market players anticipate earnings revivals on many of the hardest hit sectors in the economy. But what about leisure and travel?

While some leisure companies – such as Disney and many of the Casino resorts – have done a fine job of “reinventing” themselves, its questionable whether some of the other sectors like cruise lines and vacation resorts will do so well. Thoughts are that the bleeding coming from these sectors may take a very long time to repair. A restoration in confidence by customers of such entities may take longer, given the psychological impact of the pandemic. Who wants to be stuck on board a crammed plane or cruise ship?

Air travel will face the same challenges as these leisure companies. A differentiator will be the ability to control who gets on board (eg- COVID tested travelers only). Further, an argument could be made that you don’t NEED to go to the Caribbean all inclusive resort, but you may NEED to travel for business or family. Further, unlike leisure companies, it might be anticipated that government bailouts would be available to ensure survival of the airline industry. The sector is still considered essential.

Airline revenue fell more than 65% in 2020 compared to 2019. Most airline stocks lost 50% or more of their value as the market re-valued the stocks. Thanks to a bailout by the Trump administration, there weren’t any major U.S. airline bankruptcies.   Passenger volumes will pickup as the economy re-opens. The question is, how long will it take for that volume to get back to pre-COVID levels? Although airlines will survive, it could be a while before they thrive. Still – they appear to be pretty oversold from a technical perspective. I am intrigued by the sectors potential for a quick oversold trade. Are there any airline stocks to buy right now? I am considering adding one or two to our ValueTrend Aggressive Strategy. Below are some charts that I have been watching for a potential trade.

Air Canada

AC formed a triangle consolidation after its meltdown. It broke out, and looks to be re-testing. This is intriguing.

American Airlines

AAL is still in its triangle consolidation pattern. It needs to break out.

Delta

DAL is in an uptrend. Imagine that! Resistance will come in at around $50.

Jetblue

Southwest

It looks like LUV has had its share of love by investors. The stock is the only airline to be toying with old resistance – and its not too far off of its highs. LEss opportunistic for the contrarian player, I guess. But you are often wise to go with the winner – clearly, they are doing something right.

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One Comment

  • THE EERIE CALM OF THE MARKET AND LACK OF PERCEIVABLE THREATS HAS ONE INVESTMENT HOUSE QUESTIONING IF THIS IS THE POINT TO SELL. “THE ONLY REASON TO BE BEARISH IS …THERE IS NO REASON TO BE BEARISH”.

    (BANK OF AMERICA CHIEF STRATEGIST, MICHAEL HARTNETT)

    Reply

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