United Airlines (NYSE:UAL) stock fell 5.7% on Oct. 2 because of the World Trade Organization’s (WTO) approval of $7.5 billion of U.S. tariffs on aircraft parts made in the EU.
The decision by the WTO was its largest in dollar terms since it was founded in 1995. Airline stocks sold off on the ruling. All the major airline stocks, including United Airlines, fell by several percent.
As a result of this recent swoon by airline stocks, in 2019, UAL stock, including dividends, is down 0.6%. Airline stocks overall are up 2.5%, but that’s a meaningfully weaker performance than the overall market.
Investors Have Grown Restless
At the end of August, InvestorPlace contributor Louis Navellier discussed some of the reasons why the airlines were hurting. Between the grounding of Boeing’s (NYSE:BA) 737 Max and the protests in Hong Kong, which resulted in hundreds of flights into and out of the city being canceled, the airlines have been facing a tremendous amount of uncertainty.
The WTO’s decision to approve President Trump’s tariffs certainly didn’t help.
But United announced solid earnings in mid-July. Its earnings per share came in at $4.21, 14 cents higher than the Zacks consensus estimate and 30.3% above its earnings a year earlier. On the top line, its revenues jumped 5.8% YoY to $11.4 billion.
UAL’s Q3 earnings are due to come out on Oct. 16 before the markets open. Despite the headwinds facing the industry, I’m sure the results will be just fine.
The question is whether anything can get United Airlines stock out of its rut.
Sometimes, when gamblers don’t know which horse is going to win the race, they bet on the field.
Investors might want to follow that strategy when it comes to airline stocks.
Which Airline ETF Is Worth Buying?
Investors who like UAL stock but aren’t sure if it’s going to start moving meaningfully higher anytime soon will want to own an ETF whose holdings include a significant amount of UAL.
The best pure-play option which provides meaningful exposure to UAL stock and is focused primarily on airlines is U.S. Global Jets ETF (NYSEARCA:JETS). Airlines account for 88.2% of the ETFs $47.8 million of net assets. UAL stock, which accounts for 12% of JETS’ holdings, is the ETF’s second-largest asset, slightly behind Southwest Airlines (NYSE:LUV).
Of course, fees should also be a concern when investing in an ETF or a mutual fund. JETS has a management expense ratio of 0.60%, which is somewhat high.
As for JETS’ recent performance, not surprisingly, it has not been good. The ETF had climbed just 0.75% in 2019 as of Oct. 3.
Another ETF That Owns Airline Stocks
UAL stock makes up 8% of First Trust Nasdaq Transportation ETF’s (NASDAQ:FTXR) holdings. UAL is the ETFs second-largest holding, behind railroad Kansas City Southern (NYSE:KSU).
FTXR isn’t a pure-play on airlines, as airline stocks account for 27% of the ETFs $2.2 million of net assets. Airlines, however, have the highest weighting of any industry, including railroads, in the ETF.
But FTXR has two major disadvantages. Specifically, its management expense ratio is 0.6%, and its net asset total is so low that it may be closed down at some point.
The Bottom Line on UAL Stock
Buying ETFs that focus on airline stocks makes sense because a rising tide lifts all boats. There’s no guarantee that United Airlines stock will move higher if the sector’s outlook improves, but those who own JETS or FTXR are more likely to benefit from such a development.
One last recommendation is the iShares Transportation Average ETF (NYSEARCA:IYT), The weighting of UAL in the ETF is only 5.1%. But since its management fee is only 0.42% and airlines account for 18% of its $500 million of net assets, IYT is not a bad third option.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
