novel coronavirus pandemic. That resulted in record lows for airline stocks, but any opportunity has to be weighed against the prospect of a lengthy recovery. Or the very real possibility of bankruptcy. Southwest Airlines (NYSE:LUV) stock is a good example.” data-reactid=”12″>Investing in airlines isn’t for the faint of heart at the best of times, but in 2020 it takes nerves of steel. Airlines were hammered by the novel coronavirus pandemic. That resulted in record lows for airline stocks, but any opportunity has to be weighed against the prospect of a lengthy recovery. Or the very real possibility of bankruptcy. Southwest Airlines (NYSE:LUV) stock is a good example.
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In a three-month period starting in mid-February, the stock plummeted by 59%. Since then, it has crawled its way out of those May lows, but has effectively been stalled through the summer.
he predicted that airline stocks would rally 30% over the next year. He made LUV stock his top pick, assigning it an overweight rating based on Southwest’s focus on low cost, domestic leisure flights.
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Growth Investor.
Air Travel Remains Iffy
reported its 47th straight year of profitability in January, but by May it said it was expecting to burn through at least $30 million a day in cash as its planes sat empty. By July that had been reduced to $16 million per day, but in the second quarter Southwest still reported a net loss of $915 million.
travel “increases your chances of getting and spreading Covid-19.”
bound to lead machine learning initiatives in numerous industries.
Counting On a Vaccine for Recovery
pharmaceutical stocks have performed spectacularly in 2020. An effective vaccine is the key to a return to normalcy, and no one is watching developments on this front more closely than airline executives.” data-reactid=”40″>The one thing that everyone is counting on to put this pandemic nightmare to an end is a Covid-19 vaccine. That’s why so many biotech and pharmaceutical stocks have performed spectacularly in 2020. An effective vaccine is the key to a return to normalcy, and no one is watching developments on this front more closely than airline executives.
calls this development a “wake-up call” that an approved vaccine isn’t necessarily something that can be rushed.
Assuming a vaccine is developed, it will take more time to manufacture and distribute doses. From there, it will take more time before people regain confidence in the safety of travel.
Will all of this happen in the next year? It’s hard to picture LUV stock rallying 30% unless it does.
A History Lesson From The Great Recession
It’s far from an exact match for the current circumstances, but the great recession (2007-2009) offers some lessons for those expecting an airline stock rally.
the drop in airline passengers during the time “unprecedented.” So was the drop in airline revenue. LUV stock dropped by over 60% between 2008 and 2009, and it took five years to recover to 2008 levels.
Bottom Line on LUV Stock
turn down a $2.8 billion CARES Act loan in August. However, it’s still losing money and with no end in sight to the pandemic, LUV stock rates an ‘F’ in Portfolio Grader. Survival is one thing, but for Southwest shares to achieve that 30% rally over the next year, the airline is going to have to do a lot more than just survive. And at this point, I just don’t see a clear path to that happening.
If you’re looking for growth and/or reliability, I’d look at different themes and industries than airliners right now.
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