Today, airline stocks are among the big movers in the market. Shares of United Airlines (NASDAQ:UAL), Delta Airlines (NYSE:DAL) and American Airlines (NASDAQ:AAL) are all up around 6%, as investors price in more bullish sentiment into highly cyclical stocks.
Recent Federal Reserve meeting minutes suggest that more rate hikes are on the horizon. Alongside what would appear to be bearish commentary from Fed officials, citing the potential for a 5.4% terminal rate (or higher), investors may wonder why this is good news for airline stocks.
Well, oil prices plunged on this news, as a result of what’s expected to be weaker demand on the horizon. Accordingly, as a key input for most airlines, these stocks are seeing increased interest as the potential for margin expansion rises.
Let’s dive into what to make of today’s move in this sector.
Are Airline Stocks a Buy Right Now?
The outlook for airline stocks is a murky one, at best. Sure, lower oil prices should help in the intermediate term. Many investors have bemoaned relatively weak margins in the past. This certainly boosts the upside potential of airlines in this environment.
Airline stocks also tend to be relatively cheap, with the valuations of these three companies having taken a big hit as a result of flight cancellations and delays, as well as eroding profits despite sky-high ticket prices. If a turnaround is on the horizon, there’s a lot to like about this group as a way to play a rebound.
Indeed, the fact that airlines appear to be inversely correlated to oil prices could be a good thing for many investors. Accordingly, for those with outsized energy exposure, this may be a sector to look to. For now, it appears airlines will remain on the radar for many investors. I’ve got these stocks on my watch list right now.
On the date of publication, Chris MacDonald 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.
