United Airlines Is a Buy Long Term, But Beware Short-Term Headwinds

United Airlines (NASDAQ:UAL) stock is rallying and should continue to rally over the long haul, but hold on tight for some near-term turbulence.

The side of a United Airlines (UAL) plane with "united" written above passenger windows. Represents airline stocks.
Source: travelview / Shutterstock.com

Overall it’s a nice change of pace for UAL stock owners. For the last two months, the bears have had two major advantages over the bulls. The bearish tailwinds created by the Russian invasion of Ukraine added to a market already struggling with Federal Reserve fears. As a result equity markets have been struggling to maintain momentum until the last week or so.

But after a disastrous start to March, the bulls stepped into United stock ferociously on March 8 and ended up delivering a 40% run. That’s why I think UAL stock should face short-term resistance soon.

I wouldn’t short it, but I want to infuse a bit of reality. All of my write-ups on this company since the pandemic have been bullish. And I have successfully picked entry points that delivered healthy profits.

But after a 40% run, it is normal for a stock to face resistance. Usually it’s because this is where bottom pickers lock their profits.

The decision to buy it for new investors will be down to a matter of time. I understand that for the long term, it won’t matter much exactly where we start the position. But short term, in this post-pandemic Wall Street, timing matters more than ever before. Things are moving very fast. Small mistakes can carry graver consequences.

UAL Stock Is In FOMO Mode

United Airlines (UAL) Stock Chart Showing Potential Resistance Zones Above
Source: Charts by TradingView

It’s a matter of style, but I prefer missing out on a bit of upside to entering too early. I would wait a few days seeking a better entry point. Or else I could only take partial positions, leaving room to add more later.

Alternatively, using options opens the door for dozens of strategies that would work immediately.

Fundamentally, the news isn’t great yet. I give management kudos for surviving the lockdown crisis. The whole world came to a screeching halt, and United is in the business of moving people. Its overhead is huge, so it had to resort to extreme measures, including debt. Using leverage is a far better alternative to bankruptcy.

But now it needs its revenues to recover to pre-Covid-19 levels, and they haven’t yet. Last year’s revenues were $25 billion, which is a vast improvement from 2020’s $15 billion. However, as impressive as that number is, it’s still more than 40% below 2019’s revenue of $43 billion.

In other words, it is far from normalizing, especially on profitability.

It Is Still Tough for UAL Stock

United’s 2021 net income was around -$2 billion, which is hardly a safe situation. But at least it flowed $2 billion of positive cash from its own operations. This should help stop the bleeding, even if it doesn’t accelerate the growth.

Moreover it has operational challenges with labor and travel disruptions because of the Ukraine war.

I am pulling for UAL stock to succeed long-term, and I bet it will. But in the short term, the bulls will face strong headwinds going into $45 per share. I would look to buy it below $40 if possible. Although if someone’s intention is to hold it for a decade, then they might not share my patience for finding an entry point.

Remember that stocks do fall for extrinsic factors. Markets remain volatile, so I find it important to be in trader mode more than pure investor. Every penny counts when markets are moving this wildly.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2022/03/united-airlines-is-a-buy-long-term-but-beware-short-term-headwinds/.

©2022 InvestorPlace Media, LLC