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Airline stocks could have their time in the sun in 2022.
If the launch happens, it would come after a rough two years. The onset of the coronavirus pandemic in early 2020 — which grounded most travel — and the emergence of the highly contagious Omicron variant late last year — leading to thousands of flight cancellations — shocked the airline industry.
Airlines investors may feel like they haven’t been able to take much of a break, but that could all change, according to Barron’s senior writer Al Root. While the airline industry has experienced turbulence, such as when restrictions were again imposed on a reopening of the US economy, a bigger reopening this year feels more sustainable — and airline stocks are still a bargain.
“Early 2022 is exactly the same as early 2021,” Root said. “These are not expensive stocks, they have been beaten up. I still think they are working again just like at the end of [2020] going into the beginning of last year as the fear of pandemic subsided.”
Root recently scanned the whole thing
S&P 500
for undervalued stocks that have room for upside potential. There were 22 companies that met his criteria, three of which had direct links with the aviation industry: aircraft manufacturer
Boeing (ticker: BA) together with the airlines
Alaska Air (ALK) and
Southwest Airlines (LUV).
The airlines, in particular, caught Root’s attention, with analysts forecasting a 30% increase for Southwest and 40% for Alaska, according to Bloomberg data.
“Those are mostly American airlines,” Root said. “If international air travel really, really, well, maybe…
US Airlines [AAL] does it better or maybe
United Airlines [UAL] does better, but I’ll sleep better holding an Alaska or a Southwest,” Root said.
So far, that optimism has paid off: Southwest recently posted its first quarterly profit since the start of the pandemic. And while the company warned it expects a loss in the first quarter of 2022, Southwest expects profits for the remainder of the year.
Rival Airlines Alaska and
JetBlue (JBLU) told similar stories. JetBlue noted that it expects first quarter sales to decline 11% to 16% from the first three months of 2019 before delivering a profitable second quarter.
Watch the video above to learn more about why airline stocks are worth watching. Don’t forget to subscribe to my YouTube channel, which I will delve into further Barron’s choose stocks.
Write to Carleton English at carleton.english@dowjones.com
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