Fortune - USA (2020-12)

PICKS

0

0. 5

1.0

1.5

2.0

2.5 MILLION

MARCH MAY JULY SEPT. NOV.

DAILY PASSENGERS, 2020

DAILY PASSENGERS, 2019

U.S. AIRPORT CHECKPOINT TRAVELER VOLUME

SOURCE: TSA (7-DAY AVERAGE)

2.25 M.

11/22/20

879,609

FORTUNE DECEMBER 2020 /JANUARY 2021 51

Instead, investors hoping to reap returns

from a recovery in air travel are looking

further up the supply chain, at companies

that make and repair airplane components.

“There’s lots of ways that airlines can save

money, but plane maintenance is not really

one of them,” says Bill Callahan, investment

strategist at Schroders. As long as planes are

taking off, their parts are wearing out—and

fixing them is a lot cheaper than buying a

brand-new aircraft, which airlines can’t afford

at the moment. “Boeing’s pain is their gain,”

Callahan says of manufacturers like Cleveland-

based TransDigm, which makes aircraft

components from the cockpit to the lavatories,

and Hexcel, based in Stamford, Conn., which

specializes in carbon fiber for planes. While

both companies’ shares have surged recently,

they’re still far from their pre-pandemic highs;

Hexcel trades nearly 40% below its 2019 peak.

For those who are willing to bet early on

airline stocks, consider those with businesses

focused on the U.S.: “International travel is

going to be impacted for longer than domes-

tic travel,” notes Callahan. Domestic-focused

Southwest Airlines has ridden out the crisis

more smoothly than the other major U.S. car-

riers and has taken advantage of pandemic-

induced travel slack to add 10 new airports

to its routes by mid-2021. Peter Essele, head

of portfolio management for Commonwealth

Financial Network, believes JetBlue’s reputa-

tion for superior customer experience will give

it an edge in the long term over more tradi-

tional carriers, well beyond the pandemic.

Buyer beware, however: Even the strongest

airlines will face a lot of turbulence next year.

INTERNATIONAL STOCKS

Invest ors looking abroad are finding

strong companies at bargain prices.

D

URING THE COVID crisis,

American stocks have traded

at a premium to interna-

tional stocks because they

were, well, American: Their

businesses were supported

by stimulus spending from the Fed and by

the dollar’s status as the global reserve cur-

rency. When the pandemic finally eases, says

Goldman’s Koch, “I don’t think the U.S. will

a regulatory crackdown over its unethical

sales practices, and the Fed has imposed strict

limits on its growth. Wells’ shares have fallen

60% from their 2018 peak. But CEO Charles

Scharf has had success in chopping expenses.

And like BofA, Wells is mostly a consumer

franchise—it wrote the most mortgages last

year among the Big Four. That fact should

help it benefit greatly from rising rates.

AIRLINES AND AEROSPACE

Wary passengers and grounded flights

won’t stop these stocks from climbing.

P

ROMISING VACCINE DATA in

November sent airline stocks

soaring off their lows, but in-

vestors caution that shares may

struggle to ascend much higher

anytime soon. Though business

travelers vaccinated against COVID-19 may

be more comfortable flying, they may still be

less inclined to fly to work meetings when

they could Zoom instead. And planes aren’t

profitable to fly unless they’re full.

L ive Nation

(LYV, $68)

Bank of

America

( BAC, $28)

Wells Fargo

(WFC, $25)

TransDigm

(T DG, $574)

Hexcel

(HXL, $50)

S outhwest

Airlines

(LUV, $46)

PRICES AS OF 11/16/2 0

HOLDING PATTERN

A part ial recovery in U.S. air travel in the

summer and fall wavered as coronavirus cases

surged again.