Airline stocks have been beaten and battered. They have been volatile and will remain volatile as travel trends continue to fluctuate. However, I have been taking a closer look at the group and like the way JetBlue (NASDAQ:JBLU) is shaping up. While JBLU stock is up more than 60% from the lows, it’s still down about 50% from the highs.
That’s even as the Nasdaq Composite has gone on to hit new highs and as the S&P 500 nears its highs from earlier this year.
Most airline stocks have bounced back from the lows, rallying hard in May but topping out in June. Look, it’s going to be a turbulent ride, but airlines are not going to vanish. Simply put, they are too essential in this world.
For that reason, the group is worth combing through. So far, a few names are starting to look attractive. Spirit Airlines (NYSE:SAVE) has curbed its cash burn and should be one of the first to turn profitable. Southwest Airlines (NYSE:LUV) has the strongest balance sheet among the major carriers and should see its revenue rebound impressively.
But what about JetBlue?
Breaking Down JBLU Stock
On July 28, JetBlue reported a rough quarter. Sales fell about 90% year-over-year to $215 million, while the company lost $2.02 per share. JetBlue also posted an operating loss of $410 million. For a company that now sports a $3 billion market capitalization, that’s a big number.
The novel coronavirus really dealt this company and this industry a big blow. However, JetBlue isn’t sitting still. The company raised cash and now has $3.4 billion in liquidity. It has cut costs and has seen its cash burn drop each month since April.
It ended June averaging just under $8 million in monthly cash burn. Unfortunately, the trend may not end there. Management expects daily cash burn of $7 million to $9 million in the third quarter. That said, I like where CEO Robin Hayes’ head is at. He said:
“While demand has improved materially from the lows we saw in April, bookings remain choppy, and we remain focused on addressing changing trends as we progress through the summer.
As we move into recovery, we have laid out a three-step framework to set JetBlue up for success and emerge stronger. The first is to reduce our cash burn. The second step is to rebuild our margins. The third and last step is to repair our balance sheet.”
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The problem that JetBlue faces is the problem that all airlines face: traffic. While there was a solid recovery off the April lows, traffic plateaued in July. With coronavirus cases on the rise, bookings are leveling off.
In order for the airline space to see a strong recovery, these trends will need to resume higher. In order for that to happen, we’ll either need to see cases start to drop in a meaningful manner or we’ll need a vaccine.
Trading JetBlue Stock
I need to be clear about something. I’m not necessarily calling a bottom here or saying that the airlines can only go up from this point on. Instead, it’s more a recognition that the airline space will not disappear and that in three to five years time, these stocks will be higher than they are right now.
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In that case, I like JBLU stock, Southwest and Spirit. As it pertains to the charts, more nimble investors can take advantage of the price swings.
On the downside, look for a move below $10. That has been support for the last few months and could put a decline down to the $8 to $9 area in play. On the upside, JBLU stock needs to clear the 50-day moving average. Above puts $11.75 in play. Above that and perhaps we can start to see some upside momentum.
Specifically, the $12.50 to $13.50 zone is of interest, followed by the 200-day moving average and finally, the June highs near $15.50.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.
