Travel Heats Up…Despite the Delta Strain

Airline stocks tank and rally… Eric Fry is bullish on the travel sector… why Luke Lango believes Delta variant fears are overblown… get ready for tech gains


If you thought Monday’s 2% selloff in the Dow was bad, you should have seen what happened with airline stocks.

Below, we look at Monday’s price action for Delta, American, and United. They tanked, respectively, 3.7%, 4.1%, and 5.5%.

(And look at American and Delta, both down more than 7% at one point!)

As to what was behind the weakness, here’s our macro specialist and the editor behind Investment Report, Eric Fry:

Fear of the coronavirus delta variant seems to be behind the fall.

As cases of the variant grow, fear of another lockdown is building… and so Wall Street and investors are selling off shares before any official travel restrictions are announced.

But while the sector selloff was painful, Eric believes it’s creating the right conditions to reward investors who look beyond the fear and see the bigger picture.

Back to Eric:

Based on most empirical measures, airline and hotel bookings are not merely recovering from their COVID-induced depression – they are surging…

Last week, Delta and American issued upbeat outlooks thanks to a jump in bookings. On Sunday, July 18, the Transportation Security Administration screened nearly 2.23 million people at U.S. airports.

That’s the most since Feb. 28, 2020.

Recent news from the European travel industry has been equally upbeat. On July 15, Europe’s busiest airport, London Heathrow, reopened one runway and one terminal that had been mothballed for more than a year.

I was one of these fliers this past Sunday – the airports were a zoo, and my flights were 100% full. It was indistinguishable from the airport/flying experience pre-Covid.

***Despite this momentum in bookings, airline stocks have been languishing this summer

To illustrate, let’s look at the same carriers as above since early June. You can see this covers Monday’s market tumble, as well as a sharp rally yesterday.

In a span of roughly six weeks, we’ve seen these stocks fall between 14% and 20%.

(And again, look at American and Delta, both down 28% at one point!)

Is this merited?

On one hand, yes, the recent rise in Covid-19 cases globally is a threat to airlines stocks at a time in which they’re struggling to return to sustained profitability.

On the other hand, no, we’re not in the same place we were one year ago. Here in the United States, 161 million people have been fully vaccinated. That’s 49.2% of the population (57% have had at least one shot).

And with all the focus on the Delta variant, it’s important to note that reports show fully vaccinated people are largely protected against this new strain. In fact, this morning brings news that the New England Journal of Medicine has confirmed that two doses of Pfizer or AstraZeneca’s vaccines are nearly as effective against the Delta variant as they are against the Alpha variant.

And while fearmongering headlines are busy trumpeting eyebrow-raising percentage gains in new Covid-19 cases, it’s critical to recognize that these percentage gains are building off of a far lower baseline number of absolute cases.

We are miles below the absolute number of cases we saw back in January. You can see this in the chart below showing new cases and deaths.

But as Monday showed us, we could absolutely see fear-based selling that results in bargain prices for select travel stocks.

Yes, additional selling pressure could be ahead. But the steep losses over recent weeks have created an attractive entry-point for investors comfortable with volatility.

Eric has recommended several travel-related stocks for his Investment Report subscribers. Here’s his take for his subscribers, as well as any investors considering a travel-themed investment today:

The striking divergence (between airline bookings and airline stock prices) likely results from the endless barrage of headlines about the “delta variant” of the COVID virus that is spreading through various corners of the world, including parts of the United States, where it’s now the dominant strain of coronavirus.

Whatever the cause, real-time data from around the world are telling a story of resurgent travel activity.

As the worldwide travel recovery becomes increasingly undeniable, I expect it and my other travel-related trades to lift off once again.

I’ll add that United Airlines reported earnings on Tuesday. While the company is still operating at a loss as it recovers from lockdowns, its revenue quadrupled from a year ago.

***Meanwhile, hypergrowth specialist, Luke Lango agrees that recent Delta variant fears are overblown

For newer Digest readers, Luke is our hypergrowth expert, and the analyst behind Exponential Growth Report. His specialty is finding market-leading tech innovators that are pioneering explosive trends, leading to huge returns for investors.

Earlier this week, he sent subscribers a Flash Alert about the explosion of fear hitting the market:

We are very confident in our assessment that this round of Covid-19 will not be as bad as the previous rounds.

Some social distancing measures may return. Some things may close down for a few weeks.

But any and all restrictions related to Covid-19 that do come to pass in the coming weeks will be minor and ephemeral – they will pass, quickly, and without inflicting much damage, partly because government’s don’t want to kill the economy again, partly because humans want to be out and about living their lives again, and partly because we as a society have learned to adapt to social distancing measures and keep the world turning even when things are shut down.

Luke is putting his money where his mouth is. Yesterday, he recommended a hypergrowth social fitness company to his Exponential Growth Report subscribers.

Out of respect for Luke’s subscribers, I won’t reveal the name – but more important than this specific recommendation is Luke’s overall perspective on how all this fear will impact growth, and by extension, his specialty, hypergrowth stocks.

Back to Luke:

Over the next 12 to 24 months, Covid-19 will continue to spread in random ways across the globe, accelerating at certain times in certain areas, and calming down other times in other areas. When a “hot spot” emerges, governments will react proactively to stem the spread via masks, or social distancing, or in severe cases, travel bans.

Such measures will not be long-term. They will be short-term in nature. Maybe a few weeks of mask wearing, or a few weeks of travel bans. And, to that effect, they will only have a small impact of consumer behavior or economic activity.

But, when you keep having these lockdowns and fears permeate across the globe, what you create is a series of “small things” that together constitute one “big thing” which will consistently suppress economic activity. Again, this suppressant won’t be significant – but it will be big enough to push the global economy into a prolonged era of slow growth.

That’s actually great news for our stocks.

Luke explains how we’re going to enter a Goldilocks economic environment characterized by low-growth, low-rates, and a re-concentration of earnings growth in less economically-dependent sectors, like technology.

If you’re wondering how a low growth environment is good for hypergrowth stocks, that’s understandable – it’s a little counterintuitive.

Luke explains that hypergrowth technology stocks don’t need a red-hot economy to drive earnings growth. In fact, a cooler economy with lower interest rates benefits tech stocks because borrowing costs are lower. On the other hand, old-school, value/cyclical stocks need a red-hot economy to their drive earnings growth – they don’t benefit from lower yields.

Given that we’re headed back into a low-growth, low-rate environment, this means a return to the market regime that defined the 2010s – namely, huge gains from hypergrowth tech stocks compared with mediocre gains from old-school value stocks.

Luke believes this began in May when yields topped out. Given this, any weakness we see in hypergrowth stocks is a long-term buying opportunity.

On this note, we’ll let Luke have the last word:

The single best thing you can do during near-term sell-offs is exercise patience, let the market do its thing, and then step in and buy the dip in your favorite long-term winners.

Have a good evening,

Jeff Remsburg

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