If you can stomach the turbulence, I’d buy these airline stocks

Airline stocks have been significantly affected in the stock market crash. One Fool analyses whether it is a perfect time to buy them now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Airline stocks have evidently been one of the worst affected sectors of the coronavirus pandemic. With heavy restrictions on travel, airlines have been forced to ground their fleets, part ways with a host of their workers and receive government loans to bail them out. But this has left these airline stocks extraordinarily cheap. Therefore, I’d consider buying the following three.

A high-growth airline stock

Wizz Air (LSE: WIZZ) is the first airline stock that piques my interest. The FTSE 250 member is a low-cost airline that is the market leader in Central and Eastern Europe. It has seen tremendous growth over the past few years, with operating cash flow jumping from c.£178 million in 2015 to c.£421 million last year.

Although Wizz Air passenger numbers have fallen by 98% recently, it is still in a strong position to survive the crisis. Unlike other airline firms, Wizz Air has avoided buying back shares or paying a dividend. This has helped provide liquidity to deal with the crisis and I can certainly see a long-term recovery.

A multinational FTSE 100 airline

International Consolidated Airlines Group (LSE: IAG) is the owner of airlines such as British Airways, Iberia and Aer Lingus. IAG shares have been damaged more significantly than other airline stocks, falling by around 70% since February. Management has also stated that passenger demand will not return to 2019 levels for many years.

But I’m confident that IAG will survive the crisis, albeit in a slightly damaged form. The airline has attempted to preserve funds by announcing job cuts, grounding the majority of its fleet and cancelling its dividend. At the end of the first quarter, IAG also had total cash and undrawn facilities of c.€9.3 billion. Whilst I don’t see IAG thriving over the next few years, I still believe that there will be a major recovery from its recent lows.

A British low-cost airline

The final airline stock to consider is easyJet (LSE: EZY). This FTSE 100 firm has also taken a battering due to coronavirus, and easyJet shares have fallen by over 65% since February. This has been exacerbated by disputes between the founder, Sir Stelios Haji-Ioannou, and the easyJet board. This has revolved around the company’s £4.5 billion deal with Airbus for 107 planes.

Even so, I am confident that easyJet will survive the crisis. For example, it has managed to secure a £600 million from the Treasury and will also borrow another £407 million from commercial creditors. This means that it should be able to survive at least nine months without flying. With a price-to-book value of 0.7, the airline stock is also extremely cheap and offers an opportunity to investors.

This means that I view each of these airline stocks as a long-term buy. For risk-averse investors, these stocks are simply too volatile to touch. But whilst the short-term direction of these stocks is impossible to predict, I believe that they will all be able to recover over the next few years. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stuart Blair owns shares in easyJet. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »

Investing Articles

Is it madness to buy Palantir shares after Q3 earnings?

Palantir stock's surging again after the firm's Q3 earnings report. But after a 150% gain, is it too late to…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£6,000 in savings? Here’s how I’d aim to turn that into £1,032 a month of passive income!

A small investment in high-dividend-paying stocks with the returns used to buy more shares can generate big passive income over…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

As Lloyds’ share price tumbles 14%, is this an unmissable opportunity for me to buy at a bargain-basement price?

The Lloyds share price is substantially below its year high, but decent earnings prospects should drive its price and dividend…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares that could rise if Trump wins the Presidential election

These UK shares are among the FTSE 100's most popular stocks. And they could rise in value if Donald Trump…

Read more »

Closeup ruffled American flag representing US stocks and shares
Investing Articles

2 UK stocks that could rise if Harris wins the Presidential election

Royston Wild believes these UK stocks could receive a bump if Kalama Harris wins the Presidency, giving their share prices…

Read more »

Investing Articles

After a 96% plunge, is buying more Aston Martin shares throwing good money after bad?

Just two weeks after buying Aston Martin shares Harvey Jones found himself nursing a painful loss. Yet after recent news…

Read more »

Investing Articles

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »