Looking for the best airlines to invest in? If you don’t want to get taken for a ride, look for these features.
You are now free to move about the country. Fly the friendly skies. We love to fly, and it shows. Just alright doesn’t fly here. Fly cheaper. We know why you fly. The best airlines to invest in have the best marketing taglines, right? You know better than that. After all, airlines aren’t known for their groundbreaking mottos. Let’s be honest, “We know why you fly” sounds a little creepy.
And as much as you may like, “You are now free to move about the country,” Southwest Airlines (LUV) stock prices are about the same as they were three years ago. Fly the friendly skies did a little better, with prices generally rising for United Airlines (UAL) over the last 10 years (not counting the anomaly that was 2020). And American Airlines (AAL), with “we know why you fly,” has been mostly trending down since 2018.
Okay, so maybe creepy taglines don’t help. In fairness, the ad campaign was pretty cool; it’s just a little weird out of context. But I digress. The point here is that you have to look beyond the surface to determine which are the best airlines to invest in. What’s great, however, is that there are some features that all of these stocks have in common. Let’s take a look at what those features are.
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The best airlines to invest in all have these characteristics in common
Can we let you in on a secret? Even though we’re talking about the best airlines to invest in, most good stocks will have these same features. After all, high-quality stocks come in every sector, so feel free to take these and use them in all your stock evaluations.
1. They’re profitable. Whether you’re looking at tech stocks, consumer staples, or airlines, the best stocks are profitable. How can you find out if that’s the case? On a basic level, it’s pretty simple. Go to your favorite finance website, like Yahoo! Finance, look up the company, and check out the earnings. On Yahoo! Finance, it’s in the sidebar on the main summary page, conveniently represented in a colorful graph.
Here’s an example from Delta Air Lines, Inc. (DAL). Of course, you have to bear in mind that none of the airlines were profitable in 2020, for obvious reasons. Still, when you invest, look for profitable stocks.
2. They’re growing. Again, this is a pretty straightforward metric on the surface. Are sales increasing? Are they expanding? Is the company cutting routes and laying off pilots? Is ridership down? Are they adding more destinations? Or perhaps, more importantly, is their revenue up? Don’t overlook some of the smaller carriers in this search, either. Southwest was a small regional airline not that long ago, and they just began international flights in 2014.
3. They have competitive advantages. Warren Buffett calls this an “economic moat,” which gives a company barrier or protection from its competition. Examples of competitive advantages include high capital costs for rival companies to enter a business, a strong brand identity, or patent protection. That could be a little tricky to find in the airline industry, but one obvious competitive advantage is in the area of customer service. JetBlue (JBLU) consistently ranks high for how well they treat customers.
4. They pay dividends. Okay, this might be tricky if you’re looking for the best airlines to invest in, since it may be some time before they recover from 2020. The fact is, you would typically assume that a company that pays dividends is relatively secure. That’s even more true if they’ve raised dividends. This is certainly true outside of the airline industry, but all of the major U.S. carriers halted dividend payments in 2020. Their businesses essentially shut down unexpectedly for months. So how can you use this feature to determine whether an airline stock is better than its competitors?
You can look at the investor relations news on any of their websites to determine if and when they intend to reinstate dividend payments. You could also look to the “before times” to explore their dividends. Looking at Southwest again, they had been steadily raising their dividends since 2013.
5. Their stock prices are not declining. Again, pretty much every airline stock tanked in March of 2020. But if you look at a five-year chart, you can see that the stock prices of some airlines, including big names like American, were on a downward trend even before that. It’s one thing to hold steady and pay dividends; at least then you’re making some money as an investor. And there will always be blips from bad news or just general economic conditions.
While turnaround stories do happen, the bottom line is that investors need to cut losses short on bad stocks that continue to fall.
Airline stocks may come with a little turbulence, but the best airlines to invest in will give you, at a minimum, a steady stock price and, hopefully, rising dividends. Remember, though, like any stock, it still has to suit your demeanor as an investor.
If you want some help looking for the best stocks from the airline industry, along with stocks from a wide range of sectors, be sure to sign up for our emails so you can keep up with some of the latest research and information in the world of investing. Then, when you’re ready, sign up for one (or all) of our award-winning advisories.
Have you invested in airline stocks? What has your experience been like?