Transportation

Warren Buffett Was Wrong: 3 Airline Stocks to Buy as Americans Fly Again

Allegiant Travel

This low-cost carrier has a unique business strategy: flying where other airlines do not. Allegiant Travel Co. (NASDAQ: ALGT) connects 136 city-pairs and typically flies each leisure route only a few times a week, using older planes with low capital costs. An early unbundler, the company generates more fees per passenger than any U.S. airline. Allegiant’s largest market is Las Vegas, followed by Orlando and Phoenix.

The company announced earlier this year the largest service expansion in its history, which includes 44 new nonstop routes, including 14 routes to three new cities: Chicago, Boston and Houston. This major addition to service is driven by Allegiant’s goal of connecting leisure travelers in underserved cities to popular destinations around the country. Most of the 44 new routes are non-competitive, with no other airline providing service between those airports.

The BofA Securities price target is $140, while the posted consensus target is lower at $100.67. Allegiant Travel stock closed up 8% on Monday to $133.75 per share.

Southwest Airlines

This company continues to expand routes, remains a low-cost leader and is also one of the top airline picks across Wall Street. Southwest Airlines Inc. (NYSE: LUV) operates a passenger airline that provides scheduled air transportation services in the United States and near-international markets. It was one of the airlines with the fewest delays last year.

As of December 31, 2019, the company operated a total of 747 Boeing 737 aircraft, and it served 101 destinations in 40 states, the District of Columbia and the Commonwealth of Puerto Rico, as well as 10 near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.

The company recently had a massive stock sale to raise cash and improve its balance sheet. The analysts noted this in a recent research report:

Southwest Airlines completed a $3.9 billion capital raise which brings total liquidity to $14.8 billion after all the government payroll support funds. At a cash burn of $34 million per day, the company has enough liquidity to get through the next 435 days (vs 320 days for Delta / 225 days for United). Even with a slow recovery, we expect Southwest to end 2020 with $10 billion in cash and $1.5 billion in net debt.

The company has suspended its dividend until September of 2021. BofA Securities has set a $44 price objective, which is up from a prior $38 price target. The posted consensus target was last seen at $38.94, and Monday’s last trade of Southwest Airlines stock came in at $40.59, after a solid 6.4% increase on the day.

Given the huge run in the market, and especially these top airline stocks, it makes sense to buy partial positions, and see if we don’t pull back some as the quarter comes to an end. With no disrespect to Warren Buffett, selling at the low is never a smart idea. Perhaps he waited 30 days and bought some of these top companies back to avoid a wash-sale.