“You are now free to move about the country.”
This long time Southwest Airlines slogan has become one of the great investment themes of 2021.
Even before the pandemic was ebbing, investors had been flocking back into travel and reopening stocks. Many see them as cheap, based on 2019 results. Others see them greatly exceeding those results due to pent-up demand.
It’s a dream you can feel. Roads are crowded again. Plus, savings rates were high during the pandemic for those who had jobs they could do from home. Much of that money will be spent this year with the economic reopening.
Travel companies should benefit from both efficiency and rising prices post-pandemic. But which stocks are right for you? For this article, I’ve looked at eight of the best-known names. My views on them vary. Generally, I think the companies that were strongest going in should be stronger coming out. Other companies are speculative and have already had good runs through early 2021.
But I’m just the writer. You’re the decider. There should be profits coming throughout the sector, but your mileage as an investor will vary with where you decide to put your money.
- Southwest Airlines (NYSE:LUV)
- Airbnb (NASDAQ:ABNB)
- Disney (NYSE:DIS)
- Royal Caribbean (NYSE:RCL)
- Delta Air Lines (NYSE:DAL)
- Tripadvisor (NASDAQ:TRIP)
- United Airlines (NASDAQ:UAL)
- Carnival (NYSE:CCL)
Southwest (LUV): The Strongest Airline
But analysts know this. That’s part of why Southwest is also the most expensive airline stock. Its price of about $62 per share today is above where it was before the pandemic hit, before it suspended its 18 cent quarterly dividend.
LUV stock is strong because, while it added $9 billion in long-term debt to its balance sheet during 2020, it ended the year with $13 billion in cash. It has also already begun calling back pilots for the summer flying season.
One of the biggest risks in the stock before the pandemic, though, was Southwest’s dependence on Boeing (NYSE:BA) aircraft, especially the troubled 737-MAX. The company has doubled down on that this year, ordering 100 more of the planes. CEO Gary Kelly says he has complete faith in the aircraft, but some have already been grounded again after Boeing reported electrical problems.
That said, Southwest is also changing its route structure post-pandemic, focusing on smaller vacation markets like Myrtle Beach, South Carolina and dramatically increasing the number of flights to Austin, Texas. It’s this ability to respond quickly to changing market conditions that makes Southwest one of the best reopening stocks to buy for post-pandemic growth.
Is Airbnb (ABNB) the New King of Travel?
Airbnb only came public in 2020, but ABNB stock rocketed out of the gate. Shares were offered at $68 each. However, they started trading at $146 on Dec. 10. Since then, they’re up another 21%, even after investors took profit when they briefly rose over $200 per share in February.
But Airbnb may now be overvalued. Currently, it has a market capitalization of $107 billion on 2020 sales of $3.4 billion. Even if you write that year off, its selling at over 22 times its 2019 revenue of $4.8 billion.
Airbnb specializes in renting out bedrooms, apartments and personal homes. That’s the promise. But as the company has grown, professionals and investors have moved in. Just 5% of owners now control one-third of all listings. Additionally, some cities are fighting Airbnb. This strict regulation, especially in tourist cities, could dramatically slow its growth.
Rivals aren’t sitting on their hands, either. Booking has a comparable version of Airbnb and Expedia (NASDAQ:EXPE) is heavily advertising its version, Vrbo. Plus, Airbnb’s new “Experiences” business, which some analysts consider to be a growth catalyst, is a copy of something Tripadvisor has been doing for years.
It’s possible that this company will keep rising as one of the reopening stocks. It’s also possible it won’t.
Travel Gives Disney (DIS) a Second Stage of Growth
Disney has been a standout during the pandemic. Shares of DIS stock are up 77% over the past one year, thanks mainly to the success of its streaming strategy. It now has some 137 million paying customers across its various streaming services like Hulu, ESPN+ and Disney+.
Now, it’s possible that travel will add a second stage to Disney’s rocketing success. Before the pandemic, its travel and resorts business represented some 40% of the company’s revenue. Most of that was shut down in early 2020. Now, though, it’s coming back. As it does, revenue should quickly recover from the 22% hit Disney suffered in 2020.
Still, if you’re looking for long-term value, most analysts still believe in Disney as one of the reopening stocks. Of the 20 analysts following it at Tipranks, 17 say it’s a buy. Bank of America (NYSE:BAC) is especially optimistic, despite the shares now trading for about 135 times levered annual cash flow. It was selling at around 25 times before the pandemic hit.
Royal Caribbean (RCL) Is the Most Investable Cruise Line
During the latter part of the last decade, Royal Caribbean chose to grow its fleet of ships at a sustainable rate. It’s now benefitting from that strategy, becoming the most “investable” of the cruise line stocks. Right now, shares of RCL stock are up 125% for the past one year, as optimism grows for reopening stocks.
Royal Caribbean owns Celebrity and Silversea cruises as well as its namesake fleet. It completed the purchase of Silversea last year, then sold Azamara, a luxury brand, to private equity. It also took a Spanish line called Pullmantur bankrupt and hopes to relaunch it later this year.
While the company’s net debt rose 42% during 2020 to $16.45 billion, the company had $4.4 billion in cash at the end of December. It’s also loaning $40 million to travel agents to get them through and hopes to return to full U.S. service by November. Meanwhile, pent-up demand is so great that it’s already filling ships in Singapore for “cruises to nowhere.”
Delta (DAL) Has Yet to Regain Its Highs
While Southwest now sells for more than it did before the pandemic, shares of Delta Air Lines remain about 20% below where they were. Today, DAL stock trades for almost $47.
That’s because, while domestic travel is starting to return to normal and Delta plans on filling its middle seats in May, international travel remains slow. Even domestic travel is running on optimism. About 1.6 million people flew one day in early April. Before the pandemic, back in 2019, that number was well over 2 million on the same day.
Despite the government’s turning some of its pandemic loans into grants, Delta ended 2020 with $33 billion in long term debt, against assets of $71 billion. Moreover, Delta had an adjusted loss of $3.55 per share for its first-quarter earnings.
Once Delta has positive free cash flow again, InvestorPlace’s Mark Hake expects the stock to take off. Most analysts don’t, however. Now, only about half the analysts tracked by Tipranks call it a buy, with an average price target of $56.50.
All in all, while Delta has survived the pandemic, it has also mortgaged much of its future. That mortgage must be paid before I see this pick of the reopening stocks as a buy again.
Trip Advisor (TRIP) Has a Plan for the New Normal
Tripadvisor has a plan for big profits in the post-pandemic world. Basically, it wants to become the Amazon (NASDAQ:AMZN) of travel.
That doesn’t mean running the whole travel business. Instead, it means charging customers $99 per year for special discounts and perks on rooms. It calls this new program Tripadvisor Plus.
This idea could be a win-win-win. Hotels and resorts will get loyal customers at a discount. Customers who sign up will get discounts and perks. And Tripadvisor will get cash for running the program.
Right now, though, the company badly needs investors to forget 2020, when it lost $2.14 per share on revenue of just $604 million. Rather, it wants them to remember 2019, when the company made $126 million, or 91 cents per share, on revenue of $1.56 billion. Essentially, they want a mulligan for the past year.
But 2020 did happen — and it did substantial financial damage at that. That said, while 2021 should start off slow, results should also rise sharply once the new program’s revenues start coming in. So, if you believe in it’s new program’s pitch, TRIP stock maybe one of the better reopening stocks for you.
Speculators Are Now Betting on United Airlines (UAL)
Investment often reminds me of westward migration; the speculators come in first, then come the investors. Right now, UAL stock is benefitting from speculation.
While Southwest Airlines has passed its 2020 high and Delta Air Lines is approaching it, United is just halfway back. Its market cap of $18 billion is less than half its 2019 revenue of $43 billion.
The airline should survive, but it’s going to be a bumpy ride. Analysts expect a first-quarter loss of $6.23 per share. The airline’s bond rating is also below investment grade and its most recent debt issue carried an interest rate of 4.875%. Still, speculators have been rushing in as the airline said it was probably cash flow positive in March.
As a result, analysts are divided on United, with only about half of them saying it’s a buy on Tipranks. Even InvestorPlace’s Louis Navellier calls this one of the reopening stocks “a poor way to make money.”
Will Cruising Resume Soon Enough for Carnival (CCL)?
Of all the reopening stocks on this list, CCL stock stands out as a cautionary tale.
Before the pandemic, Carnival was buying boats with both hands, planning to add 22 new liners by 2025. Basically, it was putting all of its cash flow to work.
Then the music stopped. While based in Miami, Carnival has its legal home in Panama. This made it ineligible for pandemic relief. It was only thanks to the Federal Reserve’s expansion of the money supply that Carnival was able to survive. But the price was steep. One $4 billion bond carries an interest rate of 11.5%, while another $1.75 billion bond is convertible into stock, diluting shareholders.
Now in April, though, shares are back to around $28 with a market cap of $32 billion after 2019 revenue of $20.8 billion. That’s still less than the $57 billion in assets it carries on the books, mainly in the form of “property and equipment” like its boats.
The Centers for Disease Control and Prevention (CDC) now believes cruising could resume this summer. That should save Carnival the company. But it still leaves precious little for shareholders of CCL stock.
On the date of publication, Dana Blankenhorn directly owned shares in BAC and AMZN.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.