If you thought yesterday’s 2% drop in the overall market was nauseating, don’t check out airline stocks.

They took an absolute pounding. But if you can stand the pain, last time I checked…

• American Airlines Group Inc. (NASDAQ:AAL) stock was down around 5%.
• Delta Air Lines Inc. (NYSE:DAL) had fallen around 4.4%.
• Southwest Airlines Co. (NYSE:LUV) joined the list with its stock heading around 3.5% lower.
• United Airlines Holdings Inc. (NASDAQ:UAL) really felt the shock, with its shares diving almost 6%.
• JetBlue Airways Corp. (NASDAQ:JBLU) got away with just a 3% haircut.

And it didn’t have anything to do with the various companies’ earnings or anything like that.

Instead, 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.

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In the last Smart Money, we talked about how two of the sectors we follow in my Fry’s Investment Report portfolio have faring worse than the others over the past few weeks: precious metals and travel-related stocks.

In that report, we went over why I think precious metals are set for a comeback.

And I promised to return this week with a similar report on travel stocks.

You might think that yesterday’s carnage might have me reconsidering that pledge.

Not a chance.

Here’s why…

The Travel Recovery Is Real

Like the precious metals sector, the travel and hospitality sector has been struggling of late. But unlike the precious metals, there is nothing mystical about the ongoing recovery in travel activity.

It is obvious and real.

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

On July 2, one major travel booking platform — a company I have recommended to members of my Fry’s Investment Report letter — revealed that its hotel and air bookings were continuing to trend higher. Its net air bookings were down approximately 51% in June 2021 versus “normalized” June 2019 levels.

That’s the best reading since the beginning of the pandemic. Hotel bookings are following a similar recovery path, as the platform’s global hotel bookings in June rose to just 19% below 2019 levels.

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.

That means three of Heathrow’s four terminals are now fully functional. Meanwhile, British Airways, the dominant carrier at Heathrow, has revealed plans to dramatically increase its transatlantic capacity next month in order to accommodate an anticipated surge in cross-the-pond travel.

These encouraging news stories and data points should be conspiring to boost share prices throughout the travel sector. But most travel-related stocks have been sliding lower during the last few weeks.

Headlines Vs. Reality

Then… they plunged even further yesterday.

The TSA’s daily passenger throughput numbers have been climbing for months, and travel stocks’ share prices had been mirroring that rising trend… until recently.

Even though TSA passenger throughput has been soaring since May and has nearly recovered to pre-COVID levels, airline and other travel sector shares have been limping lower.

And yesterday they fell over.

Like I said up top, this striking divergence 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. That’s undeniable.

Watch Out, China: America Is Striking Back

These upwardly trending bookings are good news for the travel-related stocks I’ve recommended in Fry’s Investment Report and elsewhere.

In particular, every percentage point increase in booking rates brings that travel booking platform I mentioned earlier closer to flipping its cash flow from negative to positive.

From what I’ve seen, the company will achieve positive cash flow once bookings reach well over 50% of 2019 levels.

It has not yet reached that critical threshold, mostly because low-margin leisure and U.S. travel is recovering faster than high-margin business and international travel.

That’s not an ideal mix. But the company is drawing ever closer to generating positive cash flow once again.

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

Click here to find out more about those trades as a Fry’s Investment Report member.

Regards,

Eric Fry

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NOTE: On the date of publication, Eric Fry did not own either directly or indirectly any positions in the securities mentioned in this article.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls —in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.