I have no doubt that many UK investors are looking at that share price move and thinking it’s a huge opportunity. After all, one of the keys to making money from stocks is to buy low and then sell high down the track. However, I’m not convinced now’s the time to buy easyJet shares.
Here, I’ll explain why I’m not excited about easyJet’s share price and where I’d invest instead.
easyJet’s share price could struggle to take off
Since easyJet grounded its entire fleet back in March, the outlook for the budget airline has certainly improved. Recently, many countries across Europe have reopened their borders. Meanwhile, easyJet has resumed some flights. These are encouraging developments.
Yet I can’t help but feel easyJet and the other airlines are going to experience extremely challenging conditions in the months ahead.
According to a recent report from the International Air Transport Association (IATA), 33% of people say that they’ll avoid air travel in the future as a continued measure to reduce the risk of catching Covid-19. “People are clearly concerned about Covid-19 when travelling,” said Alexandre de Juniac, IATA’s director general and CEO.
Ultimately, I think Warren Buffett has got it right when he said recently that “the world has changed for the airlines.” My belief is the sector is going to struggle to generate momentum while Covid-19 is lingering.
EasyJet recently reported a total group loss before tax of £353m for the six months ended 31 March. It also advised it’s not possible to provide financial guidance for the remainder of FY2020.
In my view, there’s just too much uncertainty at present to justify buying easyJet shares. So, I’d avoid the stock for now.
I’d invest in these kinds of stocks instead
In the current environment, I think you’re much better off investing in businesses that are both highly resilient and set for long-term growth (no matter what happens with Covid-19).
One example of such a company is Reckitt Benckiser, which owns a top portfolio of health and hygiene brands. As I explained recently, it looks well-placed to benefit from both the increased focus on hygiene post-Covid-19 and the world’s ageing population. And it’s highly resilient. People buy its products no matter what the economy’s doing.
I also think it’s smart to focus on companies that should prosper as the world becomes more digital. I’m talking about companies such as Sage, which provides cloud-based accounting solutions to businesses, Softcat, which helps companies with their IT systems, and GB Group, which provides identity management solutions. Technology-focused companies should do well for investors in the years ahead.
These are the types of companies I would invest in today, instead of easyJet shares.
Edward Sheldon owns shares in Reckitt Benckiser, Sage, GB Group and Softcat. The Motley Fool UK has recommended Sage Group and Softcat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.