I’d buy easyJet shares that still look cheap after this week’s stock market recovery

easyJet shares took a hammering in the stock market crash, but there’s hope on the horizon in the shape of the Pfizer vaccine. I’d buy them today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

After the stock market crash in March, I was tempted to buy easyJet (LSE: EZJ) shares. Given how far they’d fallen, I thought they looked like a true FTSE 100 bargain. I like buying good companies on bad news, and this was my chance to do just that.

Yet I held back. Experience has taught me that one market shock is often followed by another, and so it proved. After a brief summer respite, which saw a flight bookings resurgence in August, lockdown 2.0 inflicted further damage on easyJet shares.

Investors who did buy at the bottom will feel cleverer than me, after this week’s rally. On Monday, easyJet’s shares jumped more than 35%. They’ve dipped slightly, as investors took profits, but remain nicely ahead.

Stock market crash survivors

The Pfizer vaccine has raised hopes that we’re at the beginning of the end of the pandemic. That means investors have been hunting around for stricken stocks that will fly when the world returns to something like normal again.

easyJet shares have been high on their list, along with British Airways-owner International Airlines Consolidated Group. Travel stocks are on the move.

This week’s rally shows why investors like to go hunting for cheap stocks after a crash. Share prices can rebound just as quickly as they fell. Sometimes even faster. Now I’m wondering whether to buy easyJet shares today, and finding it a difficult call to make.

The early stage of the recovery is the fastest, and I’ve missed that. I can still see a good opportunity here though. easyJet shares may have climbed almost 50% since bottoming out at 475p in late March. But today’s 707p is still half their pre-pandemic level of around 1,450p.

I’m not underestimating the scale of the challenge it still faces though. Last month, management warned of a pre-tax loss of between £815m and £845m in the year to 30 September, the first in its 25-year history. It expects to fly at just 25% of normal capacity in Q1 next year.

I’d buy and hold easyJet shares 

easyjet went into the pandemic with a healthy balance sheet. But it still had to bolster its finances by taking a £600m loan from the government, cutting 4,500 jobs, raised £608m from aircraft sales, and another £419m from shareholders.

The Pfizer vaccine could prove a financial lifesaver. Especially since the UK is first in the queue, along with the US. Personally, I’m wary of buying shares on the back of this week’s stock market bounce. As I wrote yesterday, the vaccine might not live up to early expectations. On the other hand, there are more in the pipeline.

Nobody said stock picking was easy, but one factor settles my view that this is a good time for me to buy easyJet shares. I believe in buying shares with the intention of holding them for the long term, at least five years but, ideally, longer than that. By then, we really should have this pandemic under control, and easyJet should be flying. There’s a lot of pent-up demand for travel right now. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »