U.S. airlines, their passengers and European plane-maker Airbus are all fretting about President Trump’s plan to impose $7.5 billion worth of tariffs on European goods that will make Airbus jets 10% more expensive to U.S. customers.
Contrarian investors on the other hand are cheering the market turmoil because some solid airline stocks are in the bargain bin.
The best airline stocks to buy right now depend on one’s view of Trump’s political moves over the next week. The tariffs are due to come into effect Oct. 18; within that two-week period we’ll either see Europe hit back with force, or the two sides return to the negotiating table. Perhaps we’ll even see a little of both—you need only look to the ongoing U.S.-China trade war for reference.
There’s a good chance Trump will negotiate a deal with the EU before things get out of hand since fighting a trade war on two fronts isn’t exactly helping his bid for reelection. If that’s the case, pretty much any U.S. airline stock you buy now could appreciate in the short term.
That makes now a great time to consider Delta Airlines (NYSE:DAL), one of the most financially sound airline stocks to buy. Delta’s long-term debt is relatively low and management’s focus on increasing revenue per available seat mile means the company boasts some of the best margins in the industry. Of course, DAL could be one of the hardest hit by the new tariffs— the firm has 254 unfulfilled Airbus orders on the books. Still, DAL stock offers a 3% dividend yield to ease the near-term pain, and according to JP Morgan analyst Jamie Baker, could make its way up to $78 per share in the longer-term.
Another option is low-cost carrier Spirit Airlines (NYSE:SAVE). SAVE stock fell just 4% on the tariff news compared to DAL’s 6% nosedive, but the stock is down 40% so far this year on worries about the industry as a whole. The firm’s depressed share price makes it worth consideration, according to Macquarie analyst Susan Donofrio, who believes the firm is poised to outperform in 2020.
SAVE is in a unique position because unlike other U.S. carriers, it has the potential to diversify its fleet and go with Boeing for its new aircraft orders. At the end of August CEO Ted Christie said the firm was considering adding a Boeing jet to its fleet, which is currently made up exclusively of Airbus models. So far the firm hasn’t announced its decision, but the 10% level will likely be factored.
Finally, investors who want to avoid airline stocks’ drama you may want to consider Ryanair (NASDAQ:RYAAY), whose beaten down share price is largely a product of recession fears and represents a buying opportunity. The Bank of America Merrill Lynch pointed to European airline stocks as a pocket of opportunity as the region’s economy improves. The bank gave Ryanair stock a buy rating at the end of September. RYAAY boasts strong financials and a position at the top of the region’s discount carriers, which makes it a potentially good way to play a European recovery.
Last modified: September 23, 2020 1:06 PM