<p>Southwest Airlines (NYSE: LUV) CEO Gary Kelly takes a 10% pay cut as a sign of solidarity with ranked employees who manage lower incomes due to coronavirus from China. Although it’s a noble gesture, I’m not sure it will help lift the LUV stock out of its tail.
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Down 18.9% so far (including dividends), long-term shareholders in Southwest see a 5-year total return of 1.2%, which is 620 points less than the US markets as a whole, but 490 points higher than its airlines.
The airline’s stock of all stripes is hammered.
Which airline stock to buy?
I recently suggested that investors consider American Airlines (NASDAQ: AAL) along with six other service stocks that limped due to coronavirus. I chose American because its stock has suffered much more in 2020 – AAL decreases by 48.2% YTD (including dividends), 2.6 times worse than LUV stocks – making it a risky, but potentially more lucrative opposite value game than the Southwest in the weeks and months a head.
But for those who do not care about a small risk, but do not want to expose you to the type of risk that American Airlines represents, Southwest is an exciting opportunity.
I’ve always liked Southwest. The last time I wrote about it in April 2018, I suggested that the LUV shares were cheaper than investors realized. Turnover was about $ 55 and went sideways for the next 24 months before the coronavirus sent it in mid-February. it has decreased by almost 25% in the last month.
MarketWatch published an article on March 7, two days before the Dow Jones correction of 2100 points, indicating that investors’ reaction to coronavirus and airline shares was completely exaggerated, citing comments from Michael Matousek, chief global trader for US global investors.
Matousek claimed that US carriers have strong balance sheets. Regardless of the extent of the outbreak, summer is also around the corner. Americans will take vacations.
“Will people stop going on holiday? No. Will companies stop traveling forever? No, said Matousek. “It’s oversold based on people’s fears.”
The International Air Transport Association (IATA) estimates that the coronavirus could cost the global aviation industry more than $ 113 billion from canceled or postponed flights.
Buy JETS Over LUV Stock
Although it’s a large number, I think a smart bet next year would be to buy the US Global Jets ETF (NYSEARCA: JETS) – as I write this it crossed hands on $ 20.45 – and save some dry powder buy every week it drops more than 2% over the next 6-12 months.
The biggest reason I would invest in JETS over LUV or even AAL is that it gives you diversification through its 33 holdings. The holding includes the airline’s shareholders, airport owners and even Boeing (NYSE: BA), which will make a comeback when the 737 MAX is back and the coronavirus has been eradicated.
And for those who really like Southwest, it is currently the largest holding of the exchange-traded fund with a weight of 14.42%, 41 points higher than Delta (NYSE: DAL), the second largest holding.
JETS charges 0.60%, which is not cheap compared to an S&P 500 Index ETF. But if you want to invest in the aviation industry recovering from the latest hiccup to its lucrative growth, JETS is the best way to go.
I like LUV. I even like AAL for speculative bets. But you can not beat JETS if you want to cover your bases while reducing company-specific risk.
As Warren Buffett says, “Be greedy when others are afraid.”
Will Ashworth has been writing about full-time investing since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the United States and Canada. He especially likes to create model portfolios that pass the test of time. He lives in Halifax, Nova Scotia. At the time of writing, he had no position in any of the above-mentioned securities.