Airline stocks such as IAG (LSE: IAG) and easyJet (LSE: EZJ) are getting a lot of attention from investors right now. It’s not hard to see why. Year to date, IAG’s share price is down about 67%. Meanwhile, easyJet’s share price is down about 56%. These big share price falls are attracting value hunters.
Personally, I’m not convinced that now is a great time to be buying IAG or EZJ shares. Here, I’ll explain why I’m leaving these stocks alone right now. I’ll also highlight the shares I’m buying instead.
Covid-19 uncertainty
The first reason I’m avoiding the airlines right now is the high level of uncertainty related to Covid-19.
We don’t know how long the coronavirus will hang around for. We also don’t know how long quarantines and closed borders will be in place. Add in the fact that governments around the world are constantly changing travel rules and it makes it very hard to make an informed investment decision about airline stocks right now.
Ultimately, any recovery in the sector is likely to be slow and drawn out. The industry group IATA believes that travel will not return to pre-pandemic levels until 2024. This adds risk to the investment cases for IAG and easyJet shares. A near-term rebound is not guaranteed.
Will business travel ever be the same?
Secondly, there’s uncertainty as to whether business travel will ever look the same post-Covid-19.
Will companies continue to send their employees overseas for a short meeting? Or will they opt to run meetings via Zoom instead and save thousands? Don’t forget about sustainability. Nearly all companies these days are looking to reduce their carbon footprints.
“I think business travel will never go back to what it was before, when people easily said, ‘I’m going to meet with somebody,’ got on a plane, and did that, without thinking through what the actual meeting was,” said Susan Liechtenstein, managing partner at US-based consultancy firm DigiTravel, recently.
Liechtenstein anticipates that demand might return to about 75% of 2018 levels by 2022. This uncertainty over business travel also adds risk to the investment cases for IAG and EZJ shares.
Are top investors buying IAG and easyJet shares?
Finally, have you seen any top investors stepping in to buy airline stocks?
Top fund managers such as Terry Smith and Nick Train haven’t been buying them. Meanwhile, the world’s greatest investor, Warren Buffett, has offloaded all his airline stocks this year. “The world has changed” for the airlines, he said earlier in 2020.
The fact that top investors are avoiding the airlines suggests that stocks like IAG and EZJ may not be bargains after all.
I’d buy these stocks instead
Instead of buying airline shares, I’m investing in companies that should thrive no matter what happens with Covid-19.
Technology, healthcare, and consumer goods are three sectors I’ve been focusing on. In my view, these sectors should hold up even if we see a second wave of Covid-19.
If you’re looking for investment ideas in these sectors, you’ll find plenty here at The Motley Fool.
