Below we presented the list of 5 best best airline stocks to buy for 2021. For a detailed discussion and a more comprehensive list see the 10 Best Airline Stocks to Buy for 2021.
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5. Alaska Air Group, Inc. (NYSE: ALK)
Alaska is in a much better position to stave off the coronavirus turbulence, mainly because of its limited exposure to business travel and solid balance sheet. The company’s cash burn rate is much narrower than its competitors. For example, in September, it burned $117 million, easily beating its own estimates of $150 million.
The company is currently in the news after it agreed to buy several Boeing 737 Max planes. This is the first order of a U.S. career after the Federal Aviation Administration lifted its grounding order following two deadly crashes of Max jetliners.
The stock is down over 24% year to date.
Smart money sentiment indicates that hedge funds became bullish on Alaska in the third quarter, as 34 out of 816 funds owned the airline’s stocks, up from 29 funds in the second quarter. Ric Dillon’s Diamond Hill Capital is the biggest shareholder of Alaska in our database, with 2,132,938 shares of the company, worth over $78.13 million. Confluence Investment Management said the following about the stock in its Q1 letter:
“We also took a partial position in Alaska Air due to its strong franchise value in the airline industry. Alaska is the fifth largest domestic airline and has a reputation for great client service, particularly on the West Coast where it has a near-fanatical following. The company has one of the strongest balance sheets in the industry with only $550 million of net debt versus $4.3 billion of book equity. The COVID-19 outbreak has upended the airline industry and we’ve refrained from taking a full position in Alaska Air. As always, we will continue to monitor the investment and make changes as we deem prudent.”
4. American Airlines Group Inc (NASDAQ: AAL)
American Airlines is the world’s largest airline by scheduled revenue passenger miles. The airline said on Dec. 23 that it is moving ahead with plans to recall it furloughed workers. About 8,000 American Airlines’ flight attendants have already received recall letters, it added. American Airlines’ revenue in the third quarter fell 73% as the company swung to a net loss of $2.4 billion, compared to $425 million profit a year earlier.
Earlier in December, American Airline shares gained value after BlackRock Inc. disclosed that it owns 29,008,081 shares of the company, representing a a 4.8% stake.
American Airlines recently added about 2,300 new flights to the Caribbean and Latin American, citing an anticipated increased demand in 2021. It also increased its number of available seats by over 8% systemwide.
Insider Monkey’s database shows that 37 hedge funds are bullish on the company as of the third quarter, down from 47 in the second quarter of 2020. Here is what McLain Capital said about AAL in June:
“American Airlines (AAL) : With a $6.5bln market cap & adjusting for the current cash burn & incremental net debt, American currently trades at a higher pro-forma enterprise value than it did at the beginning of the year, while revenues are off 80-90%. The two year notes, AAL 5% 6/2022, currently trade 52 cents on the dollar at a yield to maturity of 46%, implying zero equity value for the common stock. At it’s current projected pace of cash burn, the company will expend its current liquidity before year end. American is one of the most popular stocks among retail investors.”
3. United Airlines Holdings Inc (NASDAQ: UAL)
United ranks 3rd on the list of the best airline stocks to buy for 2021 based on long-term factors. In the short term, however, the company is having a bad time. The stock has lost over 50% in value so far this year. The company expects its revenue to drop by a whopping 70% in the fourth quarter, while average daily cash burn rate is expected to come in the range of $24 million -$26 million, excluding $10 million of average debt principal and severance payments per day in the quarter.
United said on Dec. 4 that it adopted a tax benefits preservation plan to preserve and protect its ability to use large net operating loss carry-forwards and other tax assets.
Out of the 816 hedge funds tracked by Insider Monkey, 40 held positions in United as of the end of the third quarter, up from 38 in the quarter earlier. Brad Gerstner’s Altimeter Capital Management is one of these hedge funds, with 4,803,279 shares of the company, worth $166.91 million.
2. Delta Air Lines, Inc. (NYSE: DAL)
As of the end of the third quarter, 43 hedge funds in our database collectively held $753.2 million worth of stakes in Delta, up from 39 hedge funds with a combined stake of $864.78 million in the second quarter. Paul Reeder and Edward Shapiro’s PAR Capital Management is the biggest shareholder in Delta, with 7.64 million shares worth $265.43 million.
Deutsche Bank recently downgraded Delta, among several other airline stocks, to Hold, citing COVID-19 crisis. Earlier in December, Delta asked its employees to take more unpaid leaves as the company tries to offset huge losses amid the travel slump caused by the coronavirus. Here is what Miller Value Partners said about DAL in its Q2 investor letter:
“Delta Air Lines Inc. (DAL) declined -1.38% over the period after the initial hit to the stock in 1Q following the outbreak of the COVID-19 pandemic. The company reported 1Q results with EPS of -$0.51, in-line with consensus. The company guided for June revenue to be down 90% YoY and announced another $1B cut to capital expenditures (CAPEX) for a total cut of $3B so far this year. The company ended the quarter with $6B in liquidity and they expect to end the June quarter with $10B in liquidity. Delta held its annual shareholders’ meeting where it noted that it expects to finish the 2nd quarter with over $15B in liquidity with a daily cash burn of $30M getting to breakeven by the end of the year.”
Southwest is the most popular airline stock to buy for 2021, as 51 hedge funds out of 816 tracked by Insider Monkey had positions in the company as of the end of the third quarter. The total value of these investments is $744.92 million. Southwest stock is down over 15% year to date. However, the stock received a bullish outlook earlier in December from Bernstein. The firm said that the availability of coronavirus vaccine indicates the dark times for Southwest could be over soon.
Southwest CEO Gary Kelly recently said that the company will continue adding new cities to its network despite the rough industry situation.
Please also see 10 Best Value Stocks To Buy Now According To Warren Buffett and Bill Gates’ Stock Portfolio: Top 15 Stock Picks.
Disclosure: None.
