Travel stocks are on Robinhood investors’ radar again. This came after most airline stocks and cruise stocks have been caught up in the sell-off, most of which saw their valuation cut by half. Among the top 10 popular stocks on Robinhood, American Airlines (AAL Stock Report), Delta Air Lines (DAL Stock Report) and Carnival Corp (CCL Stock Report) are now popular in the trading platform. Does this mean that investors are rushing in to bet for a rebound again? You tell me.
No doubt, the travel industry took a hit from the coronavirus pandemic. As reflected from the ETFMG Travel Tech ETF (AWAY Stock Report), the sector is down more than 25% year to date. Its sharpest decline of 50% was in March, but it has since rebounded slightly. Yes, the benchmark for the travel sector has improved. But some of the biggest names among the airlines and cruise stocks have yet to have the fundamentals to recover.
One thing we can be relatively sure is, the chances of the biggest names staying down forever is quite remote. In fact, there’s already some momentum building in the industry. As such, we are seeing investors pinning their hopes for a rebound when the airline stocks and cruise stocks reach a new low again. While there’s pickup for local air travel, the demand for international demand remains low. The journey in investing in travel stocks may be a slow one. But for investors with a longer time horizon, the sell-off has created opportunities to buy airline and cruise stocks at a steep discount.
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Shares of Delta Air Lines are feeling the pinch again after a strong rally for a couple of months. Of course, a lot of pessimism towards DAL stock has to do with its latest earnings and air traffic volumes. The longer the coronavirus pandemic is here to stay, the lower the chance for the airline industry to survive through the storm. To ensure survivability of the airlines, the U.S. government has to allocate some funds to make sure these airlines can meet their payrolls and existing liabilities.
The fundamentals for each airline is different. Ultimately, it all boils down to which company has enough cash buffer to weather the storm. The stronger balance sheet and lower cash-burn rate are simply the reason why investors are more hopeful of DAL stock.
The airline added debt to the balance sheet at a time when the company had no sales. That’s not a reason to rejoice. But, the lower rate of borrowing compared to its industry peers is worth the praise.Top Travel Stocks To Buy Among Robinhood Investors [Or Avoid]: American Airlines
American Airlines may take a good deal longer than originally thought to turn around. This already seems clear in the recent movements in AAL stock. But could this be an opportunity to buy the stock on discount? After AAL stock reached a recent high of $20.31 in the last two months, the stock has been sliding ever since. Now that airline stocks are showing some momentum this week, could AAL stock be trending again starting next week?
Raymond James analyst Savanthi Syth upgraded her rating on shares of American from Underperform to Neutral on Monday, writing that she sees “balanced risk-reward” in the stock, which is down more than 40% from peak prices in early June.
American Airlines reported a $2.7 billion pre-tax loss for the second quarter. It predicted third-quarter capacity will be down 60% year over year. Some analysts may say that serious investors might be better off buying AAL stock when it is trading at single digits. While it may be one of the top airline stocks in the U.S., its debt levels are what concerns investors the most. Which makes it a more risky play compared to other airlines. But the question is, do greater risks come with greater reward in this case?