Owning JetBlue (NASDAQ:JBLU) stock makes for a viable long term thesis. This, in spite of all the difficulties that the airline industry still faces for as long as the novel coronavirus remains on the loose. The medical experts are hard at work developing vaccines and therapeutics. Meanwhile, people are still afraid so they are traveling only when it becomes absolutely necessary. As a result, JBLU stock and its cohort, while on the mend, are still 40% below their February levels.
The good news is that they have had spurts of strength especially in May and into June. This shows the risk appetite for them is not dead.
Back then the famed billionaire investor Warren Buffet had just given up on his airline stocks, but new fans emerged especially in Robinhood traders. The rally was impressive but didn’t last too long. They have settled a bit since then and remain great trading vehicles. Case in point: in July I wrote about the opportunity to go long JBLU stock and it delivered almost 20% shortly thereafter.
JBLU Stock Will Recover June Highs
More importantly the bulls have maintained a higher-low trend while they chip away at resistance. For as long as this continues, JetBlue remains a viable long term thesis. The bad thing is that the resistance has so far been a wall and much more hard work is necessary to tear it down. But the more times the bulls hit it, especially from a higher base, the more energy they gather for that.
Eventually the buyers will prevail and burst through like a freight train. By then the sellers would be exhausted and the stock will over-shoot by about $3 per share. There will be resistance near $13.50 and this would also bring the battle to the June fail spot. Back then the stock collapsed almost 40% after the aforementioned great rally.
The bulls and bears will have it out if and when JBLU stock returns to that $15 per share zone. Hopefully by then the scientists would have made great strides in their vaccine efforts. We won’t need the actual delivery of it, but rather at least have concrete availability dates.
Travel and entertainment stocks are super sensitive to vaccine headlines as we’ve seen many time in recent weeks. Updates from Novavax (NASDAQ:NVAX) or Moderna (NASDAQ:MRNA) cause big spikes in airlines and hotels. Even stocks like Boeing (NYSE:BA) and Disney (NYSE:DIS) soar on them.
Airline Stock Fans Are Resilient
The fact remains that overall, the JBLU price action has been constructive. The bulls are in charge because they are buying the dips and from higher-low levels. This is proof of improving conditions as the world goes back to work. TSA screenings, although still down about 70% to this time last year, are improving once again. Investor confidence is building back up so they won’t be so jittery on red days. The selloffs will go back to being of the normal kind and not by the handfuls on mildly bad triggers.
Fundamentally, JBLU stock is still an iffy proposition on paper. Its traditional metrics are still broken but it’s an industry-wide thing. The airline stocks are still hemorrhaging cash while bookings remain extremely depressed. They have done a lot to minimize those but they need sales to return so investors can gauge their true health.
Meanwhile, JetBlue stock price is only .60 of its full year sales. This is very little froth and absolutely no hopium. Investors are being realistic about the opportunity that exists versus the risks that still loom. Without a vaccine, this virus can reignite especially given that we are headed into another flu season. This is likely to complicate matters on the medical front. Airline stocks are sensitive to that this year more than ever before.
We’ve Just Passed the Toughest Test and We Can Pass the Next One
In the early days of the outbreak airlines were fighting for their lives. It was indeed a matter of corporate life or death. The harsh measures that the companies took and the government bailouts have all but eliminated that scenario. Now it’s a matter of biding time until the Covid-19 is tamed.
Time is the normal ingredient that investors need to buy any stock. Therefore JetBlue’s bullish thesis is viable now for those who are looking for good old fashioned capital appreciation opportunities. The downside risk from here is finite since they just survived the mother of all tests. By default the upside potential is therefore the better bet and it could be great.
The options markets can offer even a greater level of assurance. They allow investors to deploy bullish risk now and still leave room for error. For example, an investor can sell the January $9 put and collect almost $1 per share now. This trade would not lose money unless JBLU stock falls another 25% from here.
Meanwhile, it won’t even need a rally to win. Since it has limited profits the investor is then free to overlay another bullish trade that has additional upside potential, like buying shares or leap calls in the stock. The modern broker platforms make it easy to execute multifaceted trades like this.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here.
