Top Five Best Stocks to Buy at 2021..1-Delta Air Lines Inc (DAL)
If in 2019 you tried to do a black swan exercise to imagine the worst possible environment for the airline industry and Delta (DAL) I do not think it would have been this bad! This is a one in a 100-year event (Spanish flu 1918!) The airline industry has never been this devastated since commercial air travel began.
The second quarter of 2021 should see a swift return to normality as multiple vaccines become widely available. The US personal savings ratio hit a record high in April and remains extremely high.
There is significant pent-up demand to travel for leisure, experiences and business. All this will see a sharp increase in bookings for Q3 and Q4 2021. Airline stocks have struggled lately as forward bookings are still down 89% on last year, but this can be attributed to the surge in US coronavirus cases seen after thanksgiving and the fears over a new strain from the UK. This gives us our DAL buying opportunity. In December 2019, shares in DAL were trading 50% higher in a normal operating environment. Delta is the biggest transatlantic airline in the world so is ideally positioned to be a big beneficiary. From 2015 to 2019, revenue went from $35b to $43b, EPS $5.68 to $7.32 so trending nicely until 2020 and the coronavirus hit.
The US has just announced another massive stimulus package. Interest rates are at record lows for a prolonged period meaning debt costs stay low. DAL stock has already bounced from its sub-$20 May lows to trade as of writing back around the $40 level. A return to normal for 2021 should see DAL stock rerate back to its long-term range of $50-$60 giving us 25-50% upside. Further tailwinds such as prolonged stimulus, low-interest rates, consumer spending and Boeing having to do deals could see DAL push above this range.
The chart below shows Delta versus the S&P 500, with DAL still well below earlier highs while the broader market has made new highs. MACD turned bullish on DAL near the lows in May 2020 and has stayed that way. DAL is still well below its 200-day moving average.
To be continue