After the stock market crash in March, I was tempted to buy easyJet (LSE: EZJ) shares. Given how far they’d fallen, I thought they looked like a true FTSE 100 bargain. I like buying good companies on bad news, and this was my chance to do just that.
Yet I held back. Experience has taught me that one market shock is often followed by another, and so it proved. After a brief summer respite, which saw a flight bookings resurgence in August, lockdown 2.0 inflicted further damage on easyJet shares.
Investors who did buy at the bottom will feel cleverer than me, after this week’s rally. On Monday, easyJet’s shares jumped more than 35%. They’ve dipped slightly, as investors took profits, but remain nicely ahead.
Stock market crash survivors
The Pfizer vaccine has raised hopes that we’re at the beginning of the end of the pandemic. That means investors have been hunting around for stricken stocks that will fly when the world returns to something like normal again.
easyJet shares have been high on their list, along with British Airways-owner International Airlines Consolidated Group. Travel stocks are on the move.
This week’s rally shows why investors like to go hunting for cheap stocks after a crash. Share prices can rebound just as quickly as they fell. Sometimes even faster. Now I’m wondering whether to buy easyJet shares today, and finding it a difficult call to make.
The early stage of the recovery is the fastest, and I’ve missed that. I can still see a good opportunity here though. easyJet shares may have climbed almost 50% since bottoming out at 475p in late March. But today’s 707p is still half their pre-pandemic level of around 1,450p.
I’m not underestimating the scale of the challenge it still faces though. Last month, management warned of a pre-tax loss of between £815m and £845m in the year to 30 September, the first in its 25-year history. It expects to fly at just 25% of normal capacity in Q1 next year.
I’d buy and hold easyJet shares
easyjet went into the pandemic with a healthy balance sheet. But it still had to bolster its finances by taking a £600m loan from the government, cutting 4,500 jobs, raised £608m from aircraft sales, and another £419m from shareholders.
The Pfizer vaccine could prove a financial lifesaver. Especially since the UK is first in the queue, along with the US. Personally, I’m wary of buying shares on the back of this week’s stock market bounce. As I wrote yesterday, the vaccine might not live up to early expectations. On the other hand, there are more in the pipeline.
Nobody said stock picking was easy, but one factor settles my view that this is a good time for me to buy easyJet shares. I believe in buying shares with the intention of holding them for the long term, at least five years but, ideally, longer than that. By then, we really should have this pandemic under control, and easyJet should be flying. There’s a lot of pent-up demand for travel right now.
The post I’d buy easyJet shares that still look cheap after this week’s stock market recovery appeared first on The Motley Fool UK.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020