Out of all the airline stocks, my favorite is still Southwest Airlines (NYSE:LUV). But today I will make the argument that JetBlue (NASDAQ:JBLU) stock is also worth a bit of upside risk at these levels. Make no mistake, JBLU stock is still a risky trade because the world is still quarantined in place and hardly anyone’s flying. Delta Air Lines (NYSE:DAL) reported earnings this morning and reiterated the importance of cash preservation as the primary concern. But if it were easy then there would be no rewards.
We all know that the current macroeconomic situation has been self imposed. But we also learned this week that some areas are starting to open back up. Germany is perhaps the highest-profile country outside of China to brave this headline.
Even inside the United States, Georgia took cues from Germany and will be selectively allowing some businesses to operate.
There are critics who say it’s too early, to that I say that maybe it is too late. Because the financial damage that we willingly caused is massive.
The human toll is definitely tragic but this article is about business and JBLU stock is in the direct line of fire of the carnage. It is now 70% below its 2015 all-time high. The Covid-19 crash caused about a 60% fall from recent high. Clearly there are levels that are repulsive to JetBlue investors. Meaning it has been a mistake to buy it when it looked bullish.
And therein lies the optimism today.
JetBlue is at the same level it was in 2014 when it broke out into a huge 200% rally, so nothing about it looks bullish today. But when a stock falls back into such a pivotal zone it finds support there.
JBLU Stock Just Survived The Toughest Test Yet
The March crash was as big a test as a stock could have. There were doubts about the industry as a whole surviving, let alone JBLU stock. Since then, that scenario is dead because the U.S. government committed to saving the airlines. We are headed into an election year and the White House will not allow any high-profile domestic company to fail. It would make for an awkward moment if President Donald Trump has to explain the demise of an iconic airline.
Moreover, last night we learned that United Airlines (NASDAQ:UAL) is offering a 39 million share secondary to raise about $1 billion in cash. While this dilutes current stakeholders, it shores up their balance sheet so they can get ready for the recovery.
JetBlue investors will be emboldened to know that UAL stock fell only 2% on the headline after hours. This means that airlines still have tricks up their sleeves should they need it. The death scenario for JBLU stock is indeed off the table, then the upside scenario is a risk worth taking.
I am realistic and not suggesting that this is the start of another 200% rally like the one from 2014. But with time, airline stocks will recover quite a bit of what they lost. This will require patience as an important ingredient. And since we are still seeing wild headlines we will also need a dash of intestinal fortitude.
JetBlue Has a Strong Base at These Levels
Technically, JetBlue has established higher-lows above $7 per share so I can assume it is short-term support. Conversely there is resistance at $10 per share, but if the bulls can break through it, they can extend the rally to $12. And that’s where things get interesting because between $12 and $14 lies a big pivot zone that would be the doorway to the high teens.
This sounds easy on paper but trust me, from watching charts over decades it’s not. Each of these ledges that it tried to hold on the way down will present a lot of resistance on the way back up. The bulls will need all the help they can get, and a surprise quarantine headline could do the trick. Maybe then the buyers will use the burst to carry the momentum and slice through a few of these resistances.
The toughest short-term test is near $12 per share.
Fundamentally, it’s a waste of time to evaluate airline stocks down here, because there are no sales flowing through the P&Ls. Let’s just say that at these levels if the zero scenario is off the table then they are cheap enough to own for a trade. That last part is important because if I can’t put a value on an asset I can’t call it an investment. This JetBlue scenario is definitely a trade that could eventually turn into an investment but not before the company heals.
There might also be some upside lift from when finally they free the Boeing’s (NYSE:BA) 737 Max model from its hangar hold. While nothing has been announced, it’s over due especially going into elections. It would make for a good talking point for the incumbent.