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From 30,000 Feet, This Sector Gives Me “Basophobia”

by | Jan 5, 2023 | Market Outlook

Dear Reader, 

Basophobia is the fear of “falling.”

It’s common in humans, but also in other types of mammals. 

It’s also distinctly different from “acrophobia,” which is the fear of heights. 

I’ve had acrophobia my entire life. I don’t like being anywhere above the 10th floor of a building (although, for some reason, I’m okay looking out a plane window). 

I don’t like being on the roofs of buildings or homes. 

I had a panic attack the first time I stepped five feet from the glass enclosures on the top floor of the Willis Tower in Chicago. 

Absolutely, not. 

I feel my stomach sink even when I see a picture of someone holding a selfie stick from the top of a tower. 

But the “fear of falling” is much different. I’m not afraid of falling. Maybe it’s the fear that I’d stumble. Or lose my grip. Or even jump. I can handle the fall.

So I’m more concerned – about basophobia – with stocks falling in the months ahead. And as I look at one specific sector, I can’t help but think that more volatility is ahead – with even greater challenges for shareholders to know where best to allocate capital.

 

What is Happening with Airlines?

 

Yesterday, I was in the airport. The Wifi didn’t work. My phone wifi didn’t work. That’s why you didn’t get my article yesterday. Hey… at least I’m not Southwest.

Last month, Southwest Airlines stock experienced an incredible implosion fueled by severe storms across the United States, crew-member challenges, and a breakdown in communication. The Department of Transportation (oh great, Pete Buttigieg pretending he knows what he’s doing again) is launching an investigation and writing sternly worded letters to Southwest’s CEO. 

There are plenty of people saying they won’t ever fly Southwest again. 

But I have bad news for them. They’ll likely have to… unless they’re ready to hit the roads on a Greyhound bus or take a layover. I’ve sworn off Southwest five times in my life, but they’re the only direct flight to Baltimore-Washington International (BWI) from Fort Myers (RSW).

Am I really going to fly through Atlanta six times a year to get up to see family and visit offices? Of course not. This situation will ultimately be resolved. 

According to the International Air Transport Association (IATA), 2023 will be a good year for the airline sector. The IATA says that in 2023, airlines should post a small net profit of $4.7 billion. That represents a net profit margin of 0.6%. This would be the industry’s first profit since 2019. The year before COVID, the industry’s net profits were $26.4 billion (a 3.1% net profit margin). 

The profitability largely stems from improved yields from global passengers.

 

Is there Value?

 

There appears to be value in the lower part of the market share chain. JetBlue (JBLU) stock has taken a big hit due to high fuel costs and the news of a planned merger with Spirit Airlines (SAVE). Shares currently trade at nearly $6.50 per share, which puts the stock at a rather stunning 0.65 price-to-book value. 

By definition, this suggests that value exists for an investor. But now is not the time to purchase a company that is “buying.”

Now is the time to find the best option in either an acquisition target… or something trading at deep value that can rally on the back of a recovery. 

That brings me to Skywest (SKYW), an airline sitting on an exceptional amount of cash right now. Skywest has exposure to the major airline companies, and runs regional trips for United Express, Delta Connection, American Eagle, and Alaska Airlines. 

It’s trading around $17.43 per share. But based on the company’s cash position, shares should be worth $20.43, signaling that this stock is undervalued and underappreciated. 

The challenge moving forward for the company is the ability to find pilots. I think that this will be alleviated in the future. In addition, I think that SKYW is a natural takeover target with more than 3% of the U.S. market share. But right now, there is a better opportunity. 

To your wealth,
Garrett signature

 

 

Garrett Baldwin

P.S. And don’t forget to let me know if you have any feedback, questions about today’s issue or anything else. Just email us at hubfeedback@wealthpress.com.

*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk. 

WRITTEN BY<br>Garrett Baldwin

WRITTEN BY
Garrett Baldwin

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