Airline stocks are moving higher, but traders say there are only 2 names in the sector worth buying now.
Airline stocks rose on Thursday after the FAA signed off on repairs that temporarily grounded Boeing 737 Max planes just months after the plane was re-introduced after being grounded for more than a year following two fatal crashes.
American Airlines (NASDAQ: AAL) is up 1.8% at the time of writing, Delta (NYSE: DAL) is up 2%, JetBlue (NASDAQ: JBLU) has risen 2.6%, Southwest (NYSE: LUV) has gained nearly 3%, and United Airlines (NASDAQ: UAL) is up 2.3%.
Despite today’s gains, the group remains down for the week, depressed by higher gas prices after the nation’s largest pipeline shutdown due to a ransomware attack last Friday.
With the Colonial Pipeline returning to service late Wednesday and the Boeing 737 Max cleared to return to the skies, the group has been spurred higher but traders say not all stocks in the sector are buys now.
“Not all airlines are created equal,” said Laffer Tengler Investments’ Nancy Tengler. Given that, there’s one name in the space that Tengler likes now.
“Southwest is in a unique position to come out of this stronger,” the chief investment officer said, noting the budget airline’s “strong history in hedging oil prices.”
One such hedge becomes profitable for the company when crude oil prices reach $65 and $70-$80 a barrel, and there’s another “really aggressive hedging program” that’s set to begin in 2022. What’s also a good sign for Southwest is that it’s in hiring mode for new flight attendants since before the COVID-19 pandemic forced a travel shutdown amid surging demand.
Now that the Colonial Pipeline is back online, “this is a company that you would want to take advantage of the weakness in because it’s going to be a strong medium and long-term player,” Tengler argues. “Mostly leisure travel. Doesn’t need to wait for business travel to come back. We’re owners and we would be buyers in here.”
Blue Line Capital’s Bill Baruch is also a fan of Southwest, given the company’s oil hedges, and says there’s one other budget airline he likes now.
“I own Spirit Airlines (NYSE: SAVE) and I like Spirit Airlines,” Baruch said, adding that beyond Southwest and Spirit, he’s currently “very hesitant” about investing in airlines even with a travel resurgence.
“I think Spirit Airlines is going to be well positioned to capitalize” on rising travel demand, Baruch added. “On a technical basis, I do think that you’ve seen a good rally out of the hole here in Spirit.”
“The $36 area has been very sticky, and although there’s a lot of resistance there, it’s holding that resistance and almost building sort of a flag-like pattern, which I find very bullish,” Baruch concluded.
