Delta May Fit a Very Long-Term Portfolio

As the world returns to normalcy, the airline stocks are having trouble adjusting. Sure, Delta Air Lines (NYSE:DAL), American Airlines (NASDAQ:AAL) and others burst higher from the 2020 lows. But DAL stock and others have since pulled back even as the economy continues to get back into action.

With a Fast Recovery Priced-In, Wait for DAL Stock to Go Lower
Source: NextNewMedia /

Some will argue that we’re seeing a disconnect between the stock market and the economy. That view is very legitimate, even if those dissenters acknowledge that equities tend to be forward looking and not focused on the “right now.”

Is There a Disconnect?

So what exactly is the market seeing that makes investors so optimistic? Cases of the novel coronavirus continue to surge. More cities and states continue to take economically negative measures to help slow the spread of Covid-19, as the U.S. is clearly lagging many other developed nations in its fight against the disease.

Despite a double-digit unemployment rate and an economy that has the potential to stall as Covid-19 cases climb, equities continue to march higher. That’s the difficult balance we’re trying to achieve right now – whether equities are moving in the right direction or the wrong direction.

Keep in mind, stocks can continue higher – and even retest the highs – despite surging Covid-19 cases. Will it be enough to keep travelers at home? Shoppers out of the mall? Even if it is, markets could hit new highs if investors are simply willing to pay a premium to own equities.

Hey, no one said this game was easy.

In the meantime, investors continue to look at cruise stocks, casinos and airlines like Delta to get a feel for whether the rally is sustainable. Let’s look at the technicals.

Trading DAL Stock

Chart of DAL stock
Click to Enlarge
Source: Chart courtesy of 

A quick look at the chart shows how violent the Covid-19 sell-off was, as well as how potent the rebound was in May.

In May, DAL stock actually broke below the March lows, bottoming near $17.50. From there, shares went soaring higher, rallying more than 100% in less than a month. Since then though, shares have pulled back notably and are now resting.

Investors are trying to figure out, what comes next – a break higher or a break lower?

With the recent pullback, a new downtrend resistance mark formed (blue line). Shares cleared that mark recently but continue to trade in a narrowing range. Considering that the stock remains above support – which is the $27 area and 50-day moving average – and given that the most recent consolidation comes after a rally, we have to assume the stock is bullish until proven otherwise.

However, should DAL stock lose the $26 mark, this stock could be in for some turbulence.

Specifically, it could fill the gap back toward $23. Below that puts $20 and a possible gap fill back toward $19.25 on the table. If this situation were to play out, I’d be looking at the $20 to $21 area to buoy Delta. This was big time support for months, until giving way temporarily in May.

Is Delta a Good Buy?

Chart of TSA Traffic
Click to Enlarge
Source: Chart courtesy of Statista, Source from TSA

This is a loaded question. The company is still burning a ton of cash. Management’s hope was to get down to “just” $50 million a day by the end of Q2.

Even if it did, we’re still talking about a massive hit to the financials versus just six months ago. Further, the recovery in airline traffic has not been robust. While Americans may be ready to get back to beach parties and pubs, they are not storming the gateways at the airport. So far, TSA traffic is at about 20% year-ago levels.

Analysts do expect a big rebound in 2021, but will it be enough? Estimates call for 65% revenue growth to $25.2 billion. However, that’s still well below 2019’s result of $47 billion.

On the earnings front, analysts at least expect DAL stock to be profitable next year, with forecasts calling for earnings of $2.91 per share. Again though, that’s down more than 50% from 2019’s $7.31 per share.

The Bottom Line on DAL Stock

Airline stocks didn’t command a premium before the Covid-19 sell-off, so I’m not sure why they would now.

DAL stock may struggle for the next few years, as it probably should. However, for long, long-term investors, it may present decent value.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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