When clearly sound, LUV share should be your first purchase

<p>The Southwest Air chart (NYSE: LUV) looks like a disaster until you compare it to other airlines. Since the turn of the year, the LUV share has decreased by 35%. It opens for trading on March 20 for just over 30 dollars. A month ago, it cost $ 57.

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The other airlines have fared much, much worse. Delta Airlines (NYSE: DAL) and American Airlines (NYSE: AAL) are both down 60%. United Air Holdings (NYSE: UAL) has lost 75% of its value.

The difference is cash. At the end of 2019, Southwest had $ 4 billion in cash and short-term banknotes on its books. Its long-term debt was only $ 1.8 billion. With most flights grounded due to Coronavirus and paid employees, this is a huge advantage.

Conservative in the best possible way

Although known for innovative uniforms and flight maps, Southwest is also conservative in the best possible way.

A Trefis instrument panel on industry shows that Southwest needs to retire only $ 654 million this year and none in 2021. Delta will owe $ 3.2 billion during that time, United $ 2.8 billion and US $ 6.3 billion . Southwest’s operating leasing fees are also much lower than for the main competitors.

Even if the US aviation industry has to close for a month, Southwest will survive it. So will its employees. They received the equivalent of six weeks’ salary even after the profit for 2019 fell.

On March 16, Southwest already planned to reduce schedules by 20%, with load factors already as low as 50%. CEO Gary Kelly takes a pay cut. He admits that this is the biggest challenge the industry has faced since the 9/11 attacks and that it “could get worse.”

At the same time, as customers rush home for self-quarantine, Southwest continues to offer bargain prices as low as $ 49. Prices have not been so low since the flight crew had hot pants. This can increase the airlines’ goodwill, the kind it gets by recreating marriage proposals or replacing lost teddy bears.

The bad news

Not all news from Southwest is good or even relatively good. Flight attendants report skin rashes and other conditions from their new uniforms. Most of these reports go to the airline’s union rather than directly to the company. Some customers publicly complain about the airline’s cancellation policy.

The airline is still tied to Boeing (NYSE: BA) 737. It does not fly another jet. Customers have taken advantage of this when flights are rearranged.

A poor safety report from the Federal Aviation Administration (FAA) is supported by the company’s mechanics, who say it protects Boeing. The result was that planes flew that had not been proven safe.

The conclusion on LUV shares

While southwestern stocks have entered oversold territory, it may go lower.

This is because we are now in the panic section of the downturn, with traders dumping stocks they do not need, convinced that they will be able to buy them for less along the way.

This follows last week’s forced sale of leverage positions and last week’s advice to “buy dip”, which now sounds ridiculous. The capitulation leaves huge amounts of cash on the market’s border and waits for a clear signal that has not yet arrived.

When the clear approach is taken, Southwest will be one of the stocks you want. Once Boeing’s problems are resolved and the Coronavirus panic has subsided, Southwest will be able to benefit. That is what it did in previous downturns in the industry. That’s what it’s going to do this time.

Dana Blankenhorn has been a finance and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him on danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. At the time of writing, he did not own any of the companies mentioned in this story.

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