Airline Fund Prepares to Rise in the Months Ahead

Paul Dykewicz

[Airbus A380 airplane]

Airline fund prepares to rise in the months ahead as the COVID-19 crisis is expected to ameliorate next year once a safe and effective vaccine is available for use by the public.

U.S. Global Jets ETF (NYSE:JETS), an exchange-traded fund launched by San Antonio, Texas-based U.S. Global Investors in April 2015, gives investors access to the stocks of air carriers, aircraft manufacturers and related companies worldwide. The airline fund showed a glimpse of its potential to soar with a gain of 16.11% on Monday, Nov. 9, when news arose on Nov. 9 that Pfizer Inc. (NYSE:PFE) and its German partner BioNTech have produced early data in their stage 3 clinical trial to indicate the COVID-19 vaccine they are testing is more than 90% effective.

The positive clinical trials, potential for the COVID-19 vaccine to be widely available next year and the likelihood of Republicans narrowly clinging to control of the U.S. Senate will produce the kind of legislative gridlock that will prevent huge tax hikes and reduce the threat of big changes that can roil the markets. JETS dipped 1.55% on Tuesday, Nov. 10, without a new catalyst to sustain its momentum, but the fund still is up 16.28% in the last three months. However, JETS is down 35.59% since the start of the year and 35.90% during the past 12 months. The fund’s current dividend yield is a modest 0.21%.

Chart courtesy of www.stockcharts.com

Airline Fund Prepares to Rise After Positive News about COVID-19 Vaccine

Frank Holmes, chief executive officer and chief information officer of U.S. Global Investors (NGROW), spoke optimistically about the potential rebound of the airline industry during a recent podcast with Kevin O’Leary, chairman of Boston-based O’Shares ETFs. Holmes recalled past occasions when airline industry stocks plunged only to climb dramatically when financial tailwinds returned.

After the horrific attacks on 9/11, the airline industry sector fell steeply before rebounding 80% within the next year, Holmes recalled. There are other examples of airline stocks roaring back after suffering from turbulence, he added.

When severe acute respiratory syndrome (SARS) hit Asia in February 2003, airline stocks dove before ascending 120% in the next year, Holmes said. In that instance, SARS was contained by the end of 2003.

Another drop in airline stocks occurred during the 2008-2009 global financial crisis when the market endured its biggest fall since the Great Depression in the 1930s amid a housing bubble and an ensuing subprime mortgage crisis in the United States. Within a year, airline stocks gained 80%, Holmes said.

Holmes Predicts a Bounce as Airline Fund Prepares to Rise 

Many people now are looking for a similar “bounce,” Holmes said. 

“I think it may take a little longer,” Holmes said. “But in 12 months, if you can make 80% on your money, that’s a home run.”

The fund has 40 positions, $2.1 billion in net assets and an expense ratio of 0.60%. Its top five holdings are big airlines that compose the following percentages of the fund’s portfolio: Delta Air Lines Inc. (NYSE:DAL), 10.20%; Southwest Airlines (NYSE: LUV), 9.91%; United Airlines Holdings Inc. (NYSE:UAL), 9.63%; American Airlines Group (NASDAQ:AAL), 8.14%; and JetBlue Airways Corp. (NASDAQ:JBLU), 4.30%. 

Chart courtesy of www.stockcharts.com

Chart courtesy of www.stockcharts.com

Airline Fund Prepares to Rise Further with Pfizer’s Vaccine Progress

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Each of those airline stocks jumped on Nov. 9, when Pfizer announced encouraging preliminary vaccine trial data, with Delta climbing 16.99%, Southwest soaring 9.70%, United rising 19.15%, American ascending 14.98% and JetBlue jumping 21.7%. The momentum faded the next day when Delta nosed up 0.73%, Southwest gained 2.07%, United fell 3.07%, American dropped 6.21% and JetBlue dipped 0.60%. 

Chart courtesy of www.stockcharts.com

Chart courtesy of www.stockcharts.com

Chart courtesy of www.stockcharts.com

Airline Fund Prepares to Rise Amid Increased Use of Artificial Intelligence

The airlines are using artificial intelligence (AI) to improve the paths of their flights to save time and money with reduced fuel costs, Holmes said. The digitalization of the world is such a phenomenon that it is affecting “every dimension” of our lives, he added.

Companies like the airlines are adapting quickly and going away from the hub structure to a new strategy to transport tourists rather than business travelers, Holmes said. If JETS goes from its current price to its previous price, it would achieve an 80% rise.

When COVID-19 arrived, millennials started to buy JETS, Holmes said. Pew Research Center uses 1996 as the last birth year and 1981 as the initial birth year for millennials. Data show there are more than 90 million millennials born between 1980 and 2000, making them the largest demographic group in the United States. Baby Boomers, who the Census Bureau designates as those born after World War II, starting in 1946 and extending through 1964, previously had been the largest U.S. demographic group.

“Even though some people say millennials don’t have any money, about 25,000 of them had invested before famous investor Warren Buffett dropped a bomb that he was getting out of the airlines, and the following week it surged 50%,” Holmes said.

“I know from data” that about 25,000 millennials have money to invest, Holmes said.

Airline Fund Prepares to Rise as Institutional Investors Gain Interest

In addition, institutional investors started to buy shares in the fund, along with traders, Holmes said. A hedge fund that would want to go short on American Airlines for $10 million could put the same amount in JETS to protect against losses in case the first trade tanked, Holmes said.

“The volume exploded from $35,000 a day to $3.5 million,” Holmes said. Now, the volume of $1.9 billion has come into JETS, which caps its holdings at 25 companies in the airline industry.

JETS buyers have included many tactical traders who are doing it daily because of the volatility in the sector, Holmes said. Robinhood offers commission-free trading that encourages small trades “coming and going,” Holmes added.

Airline Fund Prepares to Rise and One Way to Bet on Recover Is to Buy JETS, O’Leary Said

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“If you want to bet on a recovery, you buy JETS,” O’Leary said. “If you want to be part of the growth that is going on in digitization, you own OGIG. Frankly, I don’t know why you don’t own them both. They are both part of the economy that is going to be going to be dramatically effective as we come out of this pandemic.”

Paul Dykewicz meets with Kevin O’Leary for a far-ranging interview before COVID-19 social distancing.

Holmes said he decided to create JETS after realizing that the price of his tickets to travel had risen 100% before COVID-19 and his options for which airlines and flights to take had fallen 30%. To recoup some of the money he was spending on travel, Holmes said he chose to launch JETS because there was nothing else like it on the market.

Plus, Holmes said he anticipates new stimulus funding for the airlines sooner or later, since the industry employs almost one out of every 10 people, Holmes said. If they are all laid off, the process of rehiring them because of the regulatory issues becomes a challenge, he added.

U.S. Leaders Consider Stimulus as Airline Fund Prepares to Rise

U.S. leaders want to keep the airlines funded and available to return to work to help the economy “turn on a dime,” Holmes said. Passenger numbers are rising since April, when only 90,000 people were flying a day, he added. 

Now, roughly 1 million passengers a day are flying, Holmes said. A year ago, it was 2.7 million passengers a day.

“We still have a long way to go,” Holmes said. “But if they laid off all these stewardesses and pilots, they would never be able to turn the economy around quickly. So, I think government support will continue if they need it.”

Investors need to beware the fund will remain volatile, Holmes said. However, the Congress is aware of the “significance of airline industry,” he added.

Airline Fund Prepares to Rise from ‘Depressed Levels,’ Kramer Predicted

“I’ve always loved the airlines and they will ultimately reward investors who buy at this depressed level,” said Hilary Kramer, host of a national radio program, Millionaire Maker,” and head of the GameChangers and Value Authority advisory services.. “But don’t expect instant gratification.”

“They’ve laid off thousands of pilots and while the planes are [often] full now, they’re only flying 30% as much as they were a year ago. Even after the pandemic ends, it’s going to take time to rebuild demand and capacity alike. Buy JETS now if you like and come back in a few years. We’ll talk again when 2022 rolls around.”

Paul Dykewicz interviews money manager Hilary Kramer before COVID-19.

Airline Fund Prepares to Rise Despite Business Travelers Scaling Way Back

“It looks like domestic leisure and vacation travel will rebound faster than business and international travel,” said Bob Carlson, head of the Retirement Watch investment newsletter and chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. “Airlines that focus on the domestic nonbusiness market, especially the discount airlines, seem likely to recover faster than the larger legacy airlines.”

Airlines generally are an aggressive, long-term play, Carlson said. The companies likely need more government support in the short term and a vaccine or improved treatment for COVID-19, but a patient investor could do well by putting a small portion of a portfolio in the depressed sector, he added. 

“If we get a COVID-19 vaccine that is widely adopted and that is effective at curbing the spread of the virus, then one of the biggest beneficiaries will be the travel industry,” said 

Jim Woods, who heads the Successful Investing and Intelligence Report investment newsletters, as well as the Bullseye Stock Trader advisory service. 

Woods opined that the biggest moves in the market on substantively positive vaccine news would be in the sectors that have been hardest hit from COVID-19, and those sectors revolve around the consumer and consumer spending. More specifically, industries such as cruise lines, hotels, travel booking sites, movie theaters, car rental companies, theme parks and, of course, airlines will be big vaccine winners, and that means the airline stocks in the ETF JETS, Woods added.

Paul Dykewicz meets with investment guru Jim Woods before the COVID-19 crisis.

The COVID-19 pandemic caused a one-day high number of hospitalizations in the United States on Nov. 10 with 61,694, while more than 100,000 new cases nationwide occurred during each of the past seven days. Not only was President Trump infected and then hospitalized Friday, Oct. 2, until Monday, Oct. 5, but COVID-19 has caused 10,257,825 cases and 239,683 deaths in the United States, along with 51,502,104 cases and 1,272,911 deaths worldwide, as of Nov. 11, according to Johns Hopkins University. America has reported the most cases and deaths by far of any country.

Investors looking to ride the expected rebound once a COVID-19 vaccine is available may want to consider investing in JETS. The fund could be a useful way to gain a stake in the airline industry with a single investment.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others.

 

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