For United Airlines (NASDAQ:UAL) stock, the bad news just keeps coming in 2020.
The stock was already down a whopping 56% year-to-date because of the novel coronavirus and its debilitating effect on the airline industry. Then, on Wednesday, United announced that the company’s long, slow recovery will be longer and slower than expected.
United issued revised guidance for the third quarter that lowered revenue and capacity estimates. The nation’s third-largest airline now says available seats in the third quarter will be down 70% from a year ago. Previously, the airline had projected available seats would only be down 65%.
In a filing with the Security and Exchange Commission, United also says it expects revenue in the quarter to fall by 85% from last year, which is worse than the fall of 83% the company previously forecast for the third quarter.
Not surprisingly, UAL stock dropped by more than 3% on the news, bringing its year-to-date loss to more than 59%.
United Searches for a Silver Lining
United is doing its best to put some lipstick on this pig, but it’s not easy. The company announced that for the last week of August and the first week of September it saw some improvement in leisure travel bookings on domestic flights and on short-haul destinations in the Caribbean and Latin America.
That timing coincides with the Labor Day holiday, so an increase in flights is to be expected. But traffic is still down by more than half of the people who flew a year ago, so the numbers really aren’t something to celebrate.
It also announced that, even after burning an expected $25 million per day in the third quarter, it should end the quarter with about $18 billion in liquidity.
While the airline is cutting more than 16,000 jobs in October when CARES Act funding from the U.S. government is set to expire, it’s also gradually adding more flights to its schedule.
United plans to fly 40% of its schedule in October, which is an increase of its planned 34% of its schedule in September.
But even those numbers won’t be enough to help United reach its financial goals for the third quarter, which is why the company was forced to cut guidance this week. It’s also why I suggest considering more promising stocks right now like those I identify in Growth Investor.
Why United Is a Bad Bet
Investing in airlines right now isn’t a good bet. United and its peers have been shielded to some extent by federal bailout money, but those funds are going away in a matter of weeks.
Meanwhile, Covid-19 cases in the U.S. topped 6.5 million, and the number of deaths recently topped 195,000. Worldwide, there are more than 28 million cases of Covid-19 and more than 900,000 fatalities.
Flying in an enclosed metal tube and sharing the same oxygen with fellow passengers isn’t very appealing right now, particularly since it’s unknown when a Covid-19 vaccine will be available.
And business travel — a key money-maker for airlines — may not return to normal even after there’s a vaccine. Companies are making more use of video conferencing tools in lieu of face-to-face meetings.
Online conferences systems are a lot cheaper than a business-class ticket and hotel. Don’t think that hasn’t registered with companies that will be looking for ways to cut costs as the economy works toward recovery from the Covid-19 pandemic.
The Bottom Line for UAL Stock
Now trading at about $36 per share, United Airlines has a long way to climb. While it appears to have enough liquidity to sustain it, the company’s slow projected growth isn’t good enough to entice investors who are looking for the best growth stocks.
There are plenty of other names and industries in the market where you would be better off to put your money. Skip the airlines and instead look for some top names I’ve found in artificial intelligence or pharmaceuticals. Even better, look at the stocks in Growth Investor. My reports identify both the No. 1 AI and No. 1 5G stock, each of which are bound to be big-time growth stocks as they lead technological revolutions in each of these areas.
UAL stock has an “F” rating in my Portfolio Grader right now. It’s best to stay away from this one.
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On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.