Look Beyond the Ugly Headlines With United Airlines

Most rookie investors make the common mistake of investing based on the immediate headlines. However, years of success in the capital markets have taught me that the best returns are from well-reasoned forecasts of what will come. In the case of United Airlines (NASDAQ:UAL), UAL stock is a perfect contrarian candidate for those with a three-to-five-year plan.

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

Historical data suggests that within this period, United and the rest of the airliners should be fully recovered relative to where they were just prior to the novel coronavirus pandemic. I’ll get into the justification for this bullish thesis in just a bit. Still, I understand the skepticism that surrounds UAL stock, especially in light of the less-than-encouraging news cycle.

First and foremost, daily Covid-19 infections continue to be elevated, weighing heavily on our healthcare infrastructure. And this has a direct impact on consumer perceptions, which of course negatively affects air travel. Though UAL stock has more than doubled from its 2020 lows, shares are still suffering from a perception risk.

Second, the economy is another headwind that has hurt the nearer-term sentiment for airliner investments. According to the latest labor market report, we lost 140,000 jobs in December, suggesting that we have a long road ahead. On paper, that doesn’t appear helpful to UAL stock, which depends on business-related travel.

However, many investors are overstating the bearish implications of these events.

UAL Stock Is a Safer Bet Than You Think

Though the perception problem of an investment like UAL stock is admittedly severe, eventually, consumers will base their decisions on facts. And the truth is, air travel is safer than you think. According to a report from Scientific American:

At a casual glance, air travel might seem like the perfect recipe for COVID transmission: it packs dozens of people into a confined space, often for hours at a time. But many planes have excellent high-efficiency particulate air (HEPA) filters that capture more than 99 percent of particles in the air, including microbes [such] as SARS-CoV-2, the coronavirus that causes COVID.

Further, Sebastian Hoehl of the Institute for Medical Virology at Goethe University Frankfurt in Germany stated that “an airplane cabin is probably one of the most secure conditions you can be in.” Hoehl coauthored two papers regarding coronavirus transmission risk in airplanes.

On the economic front, the ugly numbers from the December jobs report hides that the overwhelming losses came from the services/hospitality industry. However, Morgan Stanley stated in its research paper that excluding this sector, the economy actually added 403,000 jobs.

In other words, the red ink isn’t pegged to economic weakness but rather to surging Covid-19 infections. With vaccine distribution coming along, this virus will become less and less of a factor. And that means UAL stock should reward patient, forward-thinking investors.

Acute Crises Have a Three-Year Recovery Window

Although the circumstances are completely different, the Sept. 11 terror attack and Covid-19 appear to impose a similar response with air-travel demand. With 9/11, it took a little under three years before passengers felt comfortable to fly at the same level of confidence just prior to the attack. This may be the same situation with the present crisis.

Air travel demand (Covid-19 crisis vs. 9/11 attack)
Click to Enlarge
Source: Chart by Matt McCall Research Staff

In each event, immediately following the act of devastation, air travel increased significantly (percentage wise) from the bottom. A few months after 9/11, demand growth generally tiptoed but stayed consistent for the next several months until it reached parity with the pre-attack era.

Obviously, the scale for the Covid-19 impact is much more severe than what happened after the terror attack. However, the growth rate since April 2020 has been much stronger than the 9/11 recovery trek.

Moreover, with the development of various treatments for the disease, getting infected is not a death sentence. Indeed, we’ve seen many high-profile individuals with comorbidities that have survived. As time passes, consumer fears of air travel will fade, benefiting UAL stock.

History Repeats Itself

You can summarize the above points in that, with enough time, betting on America is never a bad deal. Interestingly, the 9/11 attack preceded a strong bull market prior to the Great Recession. The Covid-19 crisis has occurred right before the era that I have termed the “Roaring 2020s.”

If history doesn’t repeat, it certainly rhymes. In that spirit, you can trust UAL stock. While the scale is different, we’ve seen this narrative play out before.

On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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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