After the recent vaccine news, it’s no shock airline names like Delta Airlines (NYSE:DAL) are continuing to bounce back. But, does that mean its time to dive into quality legacy carrier names like DAL stock? Yes, but it’s complicated.
How so? Simply put, this hard-hit industry will eventually recover. The world has figured out how to work around travel needs (business and personal) in the near term. But long term, air travel isn’t going to be fully replaced with virtual alternatives. That being said, it’s a bit premature to assume that, with the vaccine news, we will quickly see businesses and households return to the skies at pre-pandemic levels.
Yet, while the timeline back to the “old normal” may be years away, there’s plenty of reason to buy Delta stock now, before the inevitable comeback is priced into shares. Yes, with this and other airline stocks trading above their pandemic lows, shares have factored in a recovery. But only partially, not fully.
Simply put, there’s still some uncertainty baked into names across the sector. But by targeting high-quality names like this one with the intent of holding them for several years, you can find opportunity in this still-grounded industry.
What’s Next for DAL Stock
As I put it Nov. 9, air traffic is slowly coming back. On Oct. 18, TSA checkpoint numbers hit 1 million for the first time since March. With travel numbers still mostly under 1 million, versus over 2 million before the outbreak, things have a long way to go. But it’s doubtful we’ll see a repeat of the record low numbers (under 100,000) seen back in April.
So, does that mean we will return to the “old normal” in a matter of months? Not so fast. Sure, the vaccine news could mean things will continue to improve as we enter 2021. But, with Covid-19 cases surging and the potential for a repeat of last spring’s lockdowns, I wouldn’t say the next few months are a slam dunk for the airline industry.
However, that doesn’t mean DAL stock isn’t a buy right now. While air-travel demand remains far below pre-outbreak level, it too is burning through cash like its rivals. But based on remarks from CEO Ed Bastian, cash-burn numbers are moving in the right direction.
Coupled with its over $21 billion in liquidity, Delta is more than ready to weather the storm into 2021. But, while more improvement lies ahead, don’t get carried away. There’s a path back to the “old normal.” Problem is, it’s not a short one.
Keep in Mind, It’s a Long Road Ahead
Many may be dabbling in airline stocks in the hopes that shares will continue to surge in the short term. This was the same sentiment that prematurely sent DAL stock and its peers rallying back in June.
Just like a few months back, that’s the wrong approach. Those buying DAL stock today at around $38 per share, with the idea it’ll rally back to $60 per share in a matter of months, are likely to be disappointed.
Why? The premature recovery bets made in June failed to deliver. After soaring from their March lows, shares gave back much of their gains as the summer progressed. The same thing could happen again, with this stock falling back to where it was before the vaccine news (under $30 per share).
Yet, this dynamic doesn’t rule out buying DAL stock now, with the idea of holding it for several years. In the near term, shares could trade sideways. Or worse, head lower, as further bad news (like surging cases or delays with another stimulus package) scares off short-term speculators.
But over the course of several years, as we eventually get back to the “old normal,” this name stands a strong chance of fully bouncing back to past price levels. With this in mind, entering a long-term position today is a worthwhile opportunity.
Buy Delta Now, Before It’s Clear Skies Ahead Once Again
Sure, things remain “up in the air,” so to speak, with airline stocks. Investors are chomping at the bit to bid them up higher. But even with positive vaccine news, you can’t ignore headlines about cases surging from coast to coast. Simply put, uncertainty remains sky-high.
However, without the uncertainty, there wouldn’t be an opportunity here. Instead, the stock would bounce back to its pre-pandemic levels. As this sharp discount remains, potential long-term gains outweigh any near-term volatility you may experience along the way.
Sure, it’s a long road ahead. But now’s the time to buy DAL stock. If you wait until we are further along the path back to the “old normal,” you may miss out on much of the upside.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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