If you’re confident that a vaccine for the novel coronavirus will be brought to the public soon, then this would be a good time to invest in JetBlue Airways (NASDAQ:JBLU). It’s not a pure vaccine play like a biotechnology stock might be, but JBLU stock would most likely post strong gains as more people would return to air travel.
On Aug. 4, I recommended a long position in JBLU stock. Since that time, the JBLU share price has increased. Indeed, airline stocks generally performed well in August.
As a result, investors who already bought JBLU stock now have the option of selling their shares for a moderate profit. Meanwhile, folks who didn’t already own the stock can buy it now, but at a higher price point.
It is going to be difficult for JBLU stock to keep moving up if a Covid-19 vaccine isn’t discovered fairly soon. Moreover, both the airline industry and the overall economy would need to get back on track. Are JBLU shareholders asking for too much?
A Closer Look at JBLU Stock
When I made the bullish call on JetBlue stock in early August, the share price was slightly above $10. Exactly a month later, the stock had already crossed above $12.
That’s already a pretty decent profit, and safety-minded investors might be tempted to just sell their JBLU stock shares. Yet, as they say, there’s no reward without risk. And JBLU has a highly favorable reward-to-risk profile even after the recent gains.
Consider, for example, that JetBlue stock spiked above $15.50 on June 8. Furthermore, prior to the pandemic, JBLU exceeded $20. In other words, there’s plenty of room to the upside here.
There’s an old saying that a rising tide lifts all boats. That applies here because JBLU stock probably won’t go up unless the entire airline sector thrives. So, we need to take a closer look at the prospects of an aviation market recovery.
Remember This Warning?
It seems like just yesterday when JetBlue CEO Robin Hayes made a series of statements that shook airline investors to the core.
The most notorious of them was the dire prediction that the U.S. airline industry could face “a day of reckoning.” That’s probably not the kind of statement that JetBlue’s stakeholders wanted to hear.
On top of that bombshell, the CEO added that “airlines are going to have to reset” while also warning of the potential for “a significant amount of job losses in the industry.”
In hindsight, Hayes’s warning seems overly alarmist. There’s been no “day of reckoning” and no “reset,” at least so far. The CEO’s warning was issued in July, yet here we are in September with no Covid-19 vaccine and the airline market is still here.
No Reset Needed
Sorry about the pun, but I expect JetBlue stock to take flight when a successful coronavirus vaccine is discovered. There’s no way to predict exactly when such a vaccine will be available.
However, the vaccine horse race is heating up among drug developers. Analytic firm Statista reports, “As of August 28, 2020, there were 578 drugs and vaccines in development targeting the coronavirus disease (COVID-19).”
Also encouragingly, the firm that oversees the U.S. Global JETS ETF (NYSE:JETS) that the daily number of Transportation Security Administration (TSA) screenings reached 807,000 on Aug. 30. I concur with the ETF manager’s conclusion that further increases in TSA screenings “could spur a second big wave of airline equity buying.”
The Bottom Line
Looking back now, I almost want to conclude that the JetBlue CEO was being deliberately alarmist in July. Perhaps it was his way of begging for money from the government.
Or, it might have been a ploy to lower expectations in anticipation of an upcoming earnings report. Who knows, really? In any case, the price action of JBLU stock and the hope for a vaccine should encourage shareholders to stay the course.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.