Airlines were some of the hardest-hit stocks during the bear market brought about by the coronavirus. In fact, the Dow Jones U.S. Airline Index is still down 60% today from its Feb. 12 closing high. Even worse, last week's low was below the initial panic low in March.
In other words, the broad market's rebound happened without any help from airlines at all.
So is now a good time to buy airline stocks? Money Morning Chief Investment Strategist Shah Gilani says it's "up in the air" in a bad way.
The broad view is that most industries will recover, but not all. And we're going to show you why today. Then we'll show you an industry to buy instead as the economy recovers.
First, here's why there's no telling the fate of the airline sector...
Airline Stocks Are Not What You Think
With such a disparity in performance, investors might see this as a buying opportunity. Airline stocks have nowhere to go but up, right?
The economy is starting to open. People are itching to get back to work and to move about like they used to.
COVID-19 lockdowns inspired a lifestyle change that's kicking a new billion-dollar market into high gear - and this stock is the best way to play it. Get the pick here - it's free...
Many businesses are learning to adapt to social distancing and facemasks. They are cleaning their restaurants and stores to prevent the spread of the virus. And they want to make customers feel safe and comfortable spending their money.
Why aren't airlines included here? They're taking every measure to keep customers and employees safe, after all. They're blocking middle seats and changing boarding procedures to help customers. They know people are still very leery of being cooped in a flying tube with strangers.
Airline stocks even offer some beefy dividend yields. For example, Delta Air Lines Inc. (NYSE: DAL) has a dividend yield of 6.96%. And price/earnings ratios are among the lowest. Delta's trailing p/e is 4.33.
So why then are people like Warren Buffett steering clear of the airline sector?
Here's what Shah has to say...
The Real Reason to Avoid Airline Stocks
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According to Shah Gilani, no one knows whether airline stocks will get government bailouts and what harsh strings, such as giving up equity, will be attached.
"The bigger unknown is passenger traffic and when it will come back, will they have to charge more, or charge less to attract passengers." says Shah.
As Delta CEO Ed Bastian has said in his many media hits, people just don't ride airplanes for fun. They fly because they have somewhere to go. That means airline traffic is likely to be down until resorts, convention centers, and other destinations reopen.
Business travel, the real moneymaker for the industry, might be forever depressed as companies are proving the effectiveness of remote meetings.
When it comes to the stock market, low prices are not necessarily cheap. If companies cannot grow earnings, then prices can go even lower.
High dividend yields can change in a heartbeat if the company's earnings can no longer support them. A dividend cut could be in the offing, sending stock prices even lower.
So, unless the economy really opens up and people feel safe going about their business, it is difficult to see airlines bouncing back anytime soon. And it may not happen until there are vaccines and other treatments out there.
Here's the industry you should be looking at instead...
Six-Figure Payday Opportunity Opens After the FCC Launches $10 Billion Initiative
Working from home, telemedicine, and even online grocery shopping are trends that've been here for years without causing any problems... until February. The 88 most populous cities across the United States are now seeing their Internet speeds tumble by 44% (and this could just be the start). That's why the FCC had to step in - and its $10 billion initiative could translate to a huge payout because of it. Click here to check out our research.