BA: 2 Airline Stocks Worth a Look

The market bounced back from its dip Friday, posting a 580.25 point gain to start the week. Two stocks shined bright: The Boeing Company (BA) and Southwest Airlines (LUV). Let’s take a look at the news, which helped these airline stocks move higher immediately after a significant market pullback.

The Boeing Company (BA)

BA is well-known as one of the leading manufacturers of passenger jets and aircraft systems used for national defense. BA is so massive that it has become the largest component of the Dow Jones Industrial Average. BA clients include our federal government and airlines in the United States and abroad. Also, some commercial communication companies rely on BA in tech systems.

The stock climbed higher Monday as its 737 Max certification flights received approval. Reuters officially broke the good news on Sunday, announcing the FAA approved the Max plane’s test flights, which had been sidelined since 2019 following two deadly accidents.

The certification approval will lead to a resumption of 737 Max flights soon. BA shares rose nearly 8% as a result of the news. The stock has bounced back quite nicely since reaching its floor of $97.71 following the initial spread of COVID-19.

As long as the 737 Max pass muster during its certification flights, it should return to the air, helping BA’s stock move even higher. Although the demand for air travel is no longer as robust as it was in years past, BA is likely to trend upward if the 737 Max is proven safe. No one is quite sure what level of demand there will be for the 737 Max in the years to come. Some investors will likely scoop up the stock and possibly hold it for years, assuming air travel will normalize in time.

BA has an average analyst price target of $191.31 and a high target of $277, so there is still some room for upward movement. BA returned 3% in 2019 and 11.50% in 2018.

Southwest Airlines (LUV)

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Airlines stocks have been beaten down due to the re-emergence of coronavirus in the south and west. However, one airline is bucking the trend. Investors are “luving” LUV. This domestic carrier has a bulletproof reputation, a solid balance sheet, and fiercely loyal customers. I find when I fly LUV, I find the entire experience to be enjoyable.

LUV is the largest domestic airline in all of the United States. LUV soared (pun intended) nearly 10% on Monday after Catherine O’Brien, a Goldman Sachs analyst, went from a LUV bear to a LUV bull. O’Brien now has a favorable long-term view of LUV, shifting her rating from “Sell” to “Buy.” O’Brien’s new price target for LUV is $47. Analysts’ average price target for LUV is $42.25, with 11 analysts rating it as a “Buy,” three rating the stock as a “Hold,” and no one rating it as a “Sell.”

The fact that LUV’s business is domestic, gives it a leg up on the competition as the outbreak of coronavirus in the U.S. has led to the European Union’s banning of American flyers. Other nations are likely to follow in the weeks to come, unless the Trump administration finds a way to get the virus under control.

The bottom line is that people throughout the country are chomping at the bit to get out of their house, take a vacation, and enjoy life once again. As long as this initial wave of the virus is kept to a minimum by summer’s end, the airline industry should transition back to respectable passenger volumes. However, if a second wave of the virus emerges in the winter months, LUV will inevitably drop in unison with other airline stocks. Tread lightly on this one.

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BA shares were trading at $182.47 per share on Tuesday afternoon, down $12.02 (-6.18%). Year-to-date, BA has declined -43.65%, versus a -3.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...