American Airlines (NASDAQ: AAL) stock price lost close to half of its value during the latest selloff but the majority of market analysts and bargain hunters are suggesting capitalizing on attractive buying opportunities in the U.S. airline stocks.
Warren Buffet, the well-known value investors and bargain hunter, added 976,000 Delta Air Lines (NYSE: DAL) shares in February for roughly $45.3 million. The investment indicates Buffet’s strategy of buying fundamentally strong companies on short-term headwinds.
Delta Air Lines stock is currently hovering around the lowest level since 2016. It provides scheduled air transportation for passengers in the United States and internationally. Its fleet includes 1,000 aircraft. The company had generated fiscal 2019 pre-tax income of $6.2b.
Warren Buffet is not alone in showing confidence in attractive valuations of airline stocks. “If coronavirus concerns fade in the coming weeks and the U.S. is able to avoid recession, this scenario could see a recovery in ex-Asia demand, which could lead airline stock prices and earnings streams to stabilize,” Citigroup analyst Stephen Trent said. The analyst provided buy ratings for Delta, United Airlines (NYSE: UAL), American Airlines and Spirit Airlines (NYSE: SAVE).
American Airlines stock price is currently trading around $17, down significantly from a 52-weeks high of %35 a share. Its stock is trading around only 4.5 times to earnings and 0.17 times to sales ratio compared to the industry average of 22 and 2.30 times, respectively. The short-term moving averages and oscillators data from tradingview.com, however, indicates strong selling in the short-term.
National Economic Council director Larry Kudlow recently indicated that the U.S. government is planning to offer support to certain industries including airlines. The potential fiscal stimulus for the airline industry could also help in driving share prices higher.
American Airlines declined 10 per cent of its international capacity for its summer peak schedule along with cutting 7.5 per cent of April domestic capacity. International capacity cuts are only due to coronavirus related problems in the Asia Pacific.