This week came with good news for airline stocks.
Several airlines said on Tuesday that they had struck a deal with the Treasury Department for billions in government grants and loans.
Carriers including American Airlines (NASDAQ: AAL), Delta Air Lines (NYSE: DAL), JetBlue (NASDAQ: JBLU), Southwest Airlines (NYSE: LUV), and United Airlines (NASDAQ: UAL) have said they secured a slice of the $25 billion stimulus package, sending most of their stocks higher this week.
“We welcome the news that a number of major airlines intend to participate in the Payroll Support Program,” said Treasury Secretary Steven Mnuchin in a statement, adding that ten major airlines plan to participate in the program and “conversations continue with other airlines regarding their potential participation.”
With optimism rising late last week about airlines nearing a deal with the Treasury Department and with a deal being reached on Tuesday, several airline stocks surged higher. American Airlines has jumped 20% in the last week, Delta has risen nearly 10%, and United is up just over 30% in the last week.
“The airlines and the broader market in general has really benefited from some of the support from the federal government and central bank,” said Steve Chiavarone, portfolio manager at Federated Hermes. “You’ve taken the worst-case scenario off the market which is mass bankruptcies, financial system collapse and I think that the strong rally that you’ve seen has reflected that. You’ve taken the tail-risk off.”
But while all of these stocks rose higher on the news, Blue Line Capital president Bill Baruch said that while now’s the time to be picky with airline stocks, there’s one in particular that looks like a good bet now.
“Although no one may perform here over the next, say, through this year or at least the next few months – passenger travel is down here more than 90%, China, which is moving on [from] the virus already, it’s not really seeing travel return quite yet. And ultimately, if you were to try and find a name, I think Southwest would fit the bill for this scenario,” Baruch said.
Southwest has been hit hard this year as the coronavirus pandemic ravages the airline industry, but not quite as hard as the rest of the sector. LUV shares are down just over -39% year-to-date, while the rest of the major U.S. airlines are down more than 50%.
But Baruch said that if Southwest can get back up to $38, its “path of least resistance in the near term” could push the stock up to $44 – 34% higher than the current price.