What’s next for JetBlue (NASDAQ:JBLU) stock? Like the company’s rivals, its shares soared earlier this month, as investors placed their bets on a comeback by the airlines. But, as novel coronavirus cases have started to surge again, JetBlue’s shares are starting to pull back.
In short, we could soon be back to square one with the virus, and airline stocks have yet to retest their lows. Moreover, since some U.S. states are imposing strict quarantine rules for out-of-state travelers, the demand for air travel could become further depressed in the short-term.
Given these points, there’s a good chance that airline stocks will continue to head lower.
Older airlines like American Airlines (NASDAQ:AAL), which faces more hurdles than its peers, could drop meaningfully after their recent surge. But, even as the industry’s prospects remain very dire. low-cost names like JetBlue could be worth buying right now.
That’s because JetBlue has little international exposure. Boding well for JetBlue, many say that domestic travel will pick up quicker than international flights. And as a low-cost carrier, it will be easier for the company to get out of the red. That may explain why analysts think the airline will return to profitability in 2021, as InvestorPlace contributor Bret Kenwell wrote in his June 22 column.
So, does that make the shares worth buying today? Yes and no. The company still faces many risks. But as the shares creep back to the single digits, a solid entry point may be on the horizon.
Why JBLU Stock Is a Better Airline Comeback Play Than AAL Stock
There are a lot of interesting dynamics playing out in today’s stock market. But one of the most intriguing is how “new school” investors are making contrarian bets on “old school” airlines.
Take a look at Robinhood’s list of most popular stocks. American Airlines, the most financially weak carrier, is number three on the list. And that’s not because it has the highest market cap among airline stocks. Delta Air Lines (NYSE:DAL), which ranks fifth on the list, has a much larger market cap.
So, rebound potential, rather than size, is probably driving “new school” investors into American Airlines. But the troubled carrier is not the best play on a comeback by airlines.
JetBlue’s Strong Balance Sheet May Minimize Further Declines
Granted, JetBlue’s advantages don’t guarantee a quick rebound by JBLU stock. In the end, the level of overall air traffic levels will determine the shares’ performance.
Yet, even if the sector doesn’t recover until well into 2021, the airline may be able to withstand the drought.
As I wrote back in May, heading into 2020, JetBlue was second to Southwest in terms of balance sheet strength. Given JetBlue’s ample liquidity which should enable it to ride out the sector’s headwinds, the stock’s risk may be lower than that of its peers.
Yet that may not mean that the stock is a steal. But, as the shares start to head lower, after getting ahead of themselves earlier this month, they may now be reaching a more attractive entry point.
Consider JBLU Stock a Contrarian Buy
Many investors looking to make contrarian bets have bid up older airlines like American. But JetBlue’s prospects appear to be much stronger.
JetB;ue, which is less tied to international travel and has lower costs than many of its older peers, is a much stronger comeback play. As JetBlue’s shares pull back to single digits, consider JBLU stock a high-risk, but high-potential, buy.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.