Airline Stocks Have Been in the News a Lot Lately. But Are Any of Them Actually Worth Investing In?
There’s been a variety of news pertaining to airlines, and specifically to the Boeing 737 MAX jet problem, in recent weeks. It can be hard to know which airline stocks to buy now and which to ignore.
I always use profit growth as my first line of defense when deciding which stocks might join my Cabot Undervalued Stocks Advisor portfolios, on the theory that rising profits should theoretically lead to rising share prices. (Yes, I’m well aware that we can go through time periods when profits and share prices don’t move in synch. But at least I don’t have to worry that there’s “something wrong” with the companies that I invest in.)
At this moment, Alaska Air Group (ALK) and Southwest Airlines (LUV) are projected to deliver much stronger 2020 earnings growth than American Airlines Group (AAL), Delta Air Lines (DAL), Spirit Airlines (SAVE) and United Airlines Holdings (UAL), while Hawaiian Holdings (HA) is expected to see profits fall in both 2019 and 2020.
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The Boeing Problem
I mention the importance of profit growth because recent good news at Hawaiian Holdings and Delta Air Lines might portray these companies to be more profitable than their reality, so investors need to do their research. And then there’s Boeing (BA), which is expected to deliver huge profits in 2020. However, from a balance-sheet point of view, I won’t touch that airline stock due to the very high debt ratio.
Last week, American Airlines canceled additional 737 MAX flights through January 16, and United Airlines canceled flights through January 6. In addition, Southwest Airlines and Brazil’s Gol Linhas Aereas grounded 13 Boeing 737 NG airplanes after finding cracks in the planes, complying with a Federal Aviation Administration request for urgent inspections. Globally, Boeing reported that 38 of 810 737 NG airplanes have reported structural cracks that will require repair and replacement of the affected parts.
American Airlines and Southwest Airlines pilots are suing Boeing for lost wages related to the 737 MAX jet being out of service. I have no idea whether the pilots have a valid financial claim, but I do want to remind you that I urged you, earlier this year, to sell Boeing stock because major corporate problems or scandals have a way of continuing to unfold with repeated bad news.
Last week, in fact, Reuters reported, “A panel of international air safety regulators on Friday harshly criticized the U.S. Federal Aviation Administration’s (FAA) review of a safety system on Boeing’s 737 MAX airliner later tied to two crashes that killed all 346 people aboard.”
Just because Boeing shares rebounded nicely from recent lows does not mean that shareholders can let down their guard!
In the meantime, Delta Air Lines’ pilots are earning record overtime as the company capitalizes on passenger demand while rivals continue to cancel thousands of 737 MAX flights. (Delta does not operate any 737 MAX jets.) The company reported a good third quarter last week and plans to hire more employees to help meet demand growth. That certainly sounds like wonderful news for Delta stock, but investors need to know that the company is expected to increase profits by just 4.1% in 2020. Again, if you’re using profit growth as a stock-investing barometer, Delta is not the airline stock you want to own right now.
Now that I’ve insulted Delta Air Lines, I want to apologize and say that the employees at Delta are, by far, the most efficient, attentive and genuinely friendly airline employees that I’ve encountered at any U.S.-based airline in recent years. The difference is noticeable, and I appreciate them.
Shares of Hawaiian Holdings shot upward last week after the company raised their third-quarter revenue outlook due to better-than-expected fares on international routes and lower costs. That sounds like great news, but be careful with the stock, because the reality of ongoing profit problems will likely rear its ugly head repeatedly in 2020.
Airline Stocks to Buy
Overall, I’m still bullish on the industry as a whole, and am currently recommending two airline stocks to my Cabot Undervalued Stocks Advisor subscribers (hint: I mentioned them earlier!). To learn their names, and the names of the other growth and value stocks I’m recommending to my readers, click here.
*Editor’s Note: This post was excerpted from a recent issue of Cabot Undervalued Stocks Advisor.