The reopening of the UK economy is mostly complete. But one crucial sector is still in lockdown for all practical purposes. I am talking about aviation. But airline stocks will soon be able to breathe a sigh of relief. The last bit of the lockdown is lifted next month. I reckon share prices of stocks like International Consolidated Airlines, easyJet, and Wizzair could show some sharp movements then, making them my top stocks to watch in June.
Share prices rise in anticipation
Broadly, the story is similar for all of them. With little business activity during the past year, they have run up big losses. Even after travel resumes, they expect that it will be a while before they are able to go back to pre-pandemic health.
But what is true for financial health need not be so for stock prices. The past year showed us how stock markets are fuelled by expectation. The stock market rally started soon after vaccines were developed. Investors bought stocks of Covid-19-impacted companies fast in anticipation of bettering conditions in the future, even though there was absolutely no on-the-ground difference in their operations yet.
That included aviation stocks, some of whom have bounced back exceptionally well. Consider the Irish low-cost airline Ryanair, whose share price recently touched three-year-highs. In stark contrast, it posted an expectedly big loss during the past year.
International Consolidated Airlines lags
Not all airline stocks have had it that good though.
The FTSE 100 airline group International Consolidated Airlines, for example, is not just presently at a fraction of its pre-crash share price, it is even lower than where it was last year at this time. It is easy to see why from its latest update. It reported a sharp reduction in revenue in the first quarter of 2021 compared to the same time last year.
Low cost airlines have it better
Low cost airline easyJet has had it better at the stock market. Compared to last year, its share price is up almost 17% and it is back to early March 2020 levels, just before the pandemic fear got real. It has also reported poor results recently, but has also pointed out signs of pent-up travel demand. It is ready to ramp up capacity to 90% of its fleet if summer demand is strong.
The only FTSE airline to beat Ryanair on share price is Wizz Air, which actually touched all-time-highs in April this year. The Hungarian ultra-low cost airline has the advantage of being particularly attractive after a slowdown when consumers could be careful about how much they spend. I am interested in whether its share price will rise any higher when the air travel situation eases.
My takeaway for the three aviation stocks
Since Wizz Air’s share price does not seem to be in line with its weak current financials, however, I would stay away from it for now. I already hold easyJet shares and that leaves me with International Consolidated Airlines. I think it has potential, and I will most closely watch this stock as a potential long-term investment.
Manika Premsingh owns shares of easyJet. The Motley Fool UK has recommended Wizz Air Holdings. 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.