However, it appears as though it is now safe to invest in airlines. A vaccine is available to combat the virus, possibly setting the stage for a return to normalcy at some point in 2021.
If society returns to normal, air travel will gradually move back toward pre-pandemic levels, helping the following stocks move higher: Southwest Airlines Company (LUV), China Southern Airlines Company (ZNH), and Allegiant Travel Company (ALGT).
Southwest Airlines Company (LUV)
As the largest domestic airline in the United States, LUV has enjoyed a competitive advantage over other airlines that are more dependent on international travel. LUV’s fortunes will improve all the more after a coronavirus vaccine is administered to the public. The pent-up demand for travel will likely help LUV set records for passenger numbers and revenue in a couple of years following the pandemic’s end.
If you are still hesitant to invest in LUV, consider the fact that the stock has “B” grades in the Peer Grade and Trade Grade POWR Rating components. LUV is ranked third of more than 20 publicly traded airline companies. The top analysts insist LUV is fairly priced at $49.33, meaning it has more than a 3% upside. However, once it appears as though air travel is returning to normal, there is a good chance LUV will spike even more.
Look for LUV to move back toward its pre-virus price level of $55 to $60 in the months ahead.
China Southern Airlines Company (ZNH)
Renewed confidence in the global economy and the safety of air travel will help airline stocks both here at home and also abroad. ZNH, one of China’s top air transportation companies, will benefit from the spike in travel. It is worth noting ZNH is a 60% shareholder in Zhuhai, Guangxi, Shantou, and Xiamen regional airlines.
The POWR Ratings show ZNH has “A” grades in the Peer Grade and Trade Grade components. The stock also has a “B” grade in the Buy & Hold Grade component. ZNH is ranked in the top five of more than 20 airline stocks.
ZNH has suffered a few setbacks in its gradual return to its pre-virus trading level of $30 – $35 yet it is making steady progress. Look for ZNH to trade toward the $35 to $40 level in the months ahead. However, if it takes longer than expected for the coronavirus vaccine to mitigate the spread of the virus, it might take a couple of financial quarters for ZNH to move toward the $40 mark.
Be patient, hold ZNH for the long haul and you will emerge with a substantial profit in the end.
Allegiant Travel Company (ALGT)
Launched more than two decades ago in Las Vegas, NV, ALGT operates an affordable passenger airline. ALGT’s main focus is on helping leisure travelers enjoy trips to the world’s top travel destinations. Though ALGT has fierce competition in the form of the aforementioned LUV, ALGT also makes money through vacation deals, hotel bookings, car rentals, and more.
The POWR Ratings reveal ALGT has “A” grades in the Peer Grade, Trade Grade, and Buy & Hold Grade components. ALGT is ranked second of 22 stocks in the Airlines category. Check out the analysts’ take on ALGT and you will find they are bullish, setting an average price target of $180.60, meaning there is more than 5% upside.
Take a look at ALGT’s one-year chart and you will find the stock has gradually made its way back to its pre-virus price level. The bottom line is ALGT has successfully made it through the pandemic, setting the stage for a bright future that might propel the stock toward the $200 mark.
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LUV shares were trading at $47.65 per share on Wednesday afternoon, up to $0.38 (+0.80%). Year-to-date, LUV has declined -11.39%, versus a 15.53% 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...
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