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Buy Uber Stock on Weakness as Trends Point to Big Boost for Ride Sharing

After Uber (NYSE:UBER) stock retreated last week, investors should buy the shares. I continue to believe that Uber and its top competitor, Lyft (NASDAQ:LYFT), will benefit from the decline of mass transit ridership, the opening of economies and the rebound in demand for flying. There are multiple signs that these trends are already beginning to strongly boost demand for ride-sharing services.

Buy Uber Stock on Weakness as Trends Point to Big Boost for Ride Sharing
Source: TY Lim /

Even the name “mass transit” sounds very bad during a pandemic. And I think it’s clear that riding subways and buses are much more dangerous than flying; planes are heavily ventilated and thoroughly cleaned after every flight. Moreover, most airlines are leaving the middle seat open on their planes, enabling some degree of social distancing.

Even as New York City has begun to reopen, “those who can avoid public transit are doing so,” The Indypendent reported recently. New Jersey has also started to reopen, but the ridership on New Jersey Transit is still 93% below normal levels, the agency’s head recently reported.

The Indypendent emphasized that many New Yorkers are riding bicycles instead of subways. But for others, Uber and Lyft are good alternatives. After all, riding in a car with one other person who’s definitely wearing a mask, sits is around 18 inches away and face in the opposite direction sounds like a much better alternative than potentially sitting inches away from people who may or may not be wearing masks. And, of course, automobiles move much more faster — even in big-city traffic — than bikes.

In large cities in the U.S. and Europe, demand for ridesharing is likely already being boosted by people’s desire to avoid mass transit amid the pandemic. As economies reopen, that trend will intensify, boosting ridesharing’s results and Uber stock.

Demand for Flying Is Rebounding

As I noted in a recent column on American Airlines (NASDAQ:AAL), “last month, an average of 110,000 people per day flew” on the company’s planes, up dramatically from about 32,000 customers per day in April. according to The Boston Globe. I also reported that the airline expects demand to increase further this month and ” plans to increase its capacity to 55% of its pre-pandemic schedule in July, versus just 20% in May.”

And as I stated in a previous column on Lyft, ridesharing services clearly benefit from increased demand for flying.

Upbeat on Uber and Lyft

On June 3, Lyft reported that it had provided 26% more rides in May than in April. The company noted that, in cities where lockdowns had been eased, the rebound was especially powerful. Clearly, the reopenings, combined with avoidance of mass transit and the resumption of air travel, are already causing demand for ridesharing to jump.

Research firm Needham noted that the number of rides provided by Lyft during the last week of May had fallen less than 66% year-over-year. In the wake of Lyft’s report, the firm expects Uber’s second-quarter results to beat analysts’ average expectations.

The firm thinks that Uber’s Q2 EBITDA loss could come in at $275 million, versus its previous outlook of $360 million. The analysts there kept a $42 price target on Uber stock.

Bottom Line on Uber Stock

Continued reopenings, along with less use of mass transit and a rebounding in flying, will prove to be a winning combination for Uber stock. Indeed, Lyft’s update proves that the formula is already starting to work.

I believe that Uber’s shares can reach Needham’s price target of $42 by the end of September. Uber stock closed at $32 on Friday, so I think that investors who pull the trigger on the shares can realize a 30% profit in just a few months.

As of this writing, Larry Ramer did not own shares of any of the aforementioned securities. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been airline stocks, oil stocks and Snap. You can reach him on StockTwits at @larryramer.

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