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Waiting for Your Flight: Outlook for Southwest Stock

The third quarter may not be going great for airlines, but some names look set to weather the latest crises, says Real Money contributor Tim Collins.
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Investors would do well to be patient with the airline stocks, advises Real Money contributor Tim Collins. He takes a look at Southwest  (LUV) - Get Southwest Airlines Co. Report and JetBlue  (JBLU) - Get JetBlue Airways Corporation Report, and says that while Southwest shares were able to hang in after the company warned, he saw some resistance around $51. Southwest slipped a little less than 2% on Thursday to close at $50.27.

Over on Real Money, Collins has some advice for investors when it comes to airlines: Be patient. There may be some triggers around the corner. Read more of his investing insights and trading strategies.

"As you probably know by now," Collins writes, "Southwest Airlines warned about its third quarter, blaming the rise in COVID-19 because of the Delta variant. Yes, I know it is ironic that the Delta impacting Southwest is not actually their Delta  (DAL) - Get Delta Air Lines, Inc. Report competitor. Cancellations have increased and Southwest is allowing for credits and rebookings, which is great for customer service but not so great for the bottom line. The most amazing thing is this change has worsened significantly in the past three to four weeks. August sales are expected to be lower by 15% to 20% after a July that fell in line.

Southwest shares are down about 2.88% over the past week; JetBlue stock is up more than 7% in the past five trading days, while Delta shares are up about 7.5% in the past week.

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"In terms of what I'm seeing and hearing from those traveling, there are quite a few cancellations of flights. In the past week alone, I've felt it firsthand on Southwest and JetBlue. From my view, airlines are having to condense flights to fill them because of cancellations. It almost seems like they would be just as well to leave the middle seats empty in an attempt to get less cancellations."

Historically, the stock market has had a love/hate relationship with airlines. Their business model struggles and their stocks fall. They start charging for checked bags, investors love them again. Most crises cause their stocks to fall, as travel tends to freeze up during physical or financial panic. Their stocks come back during a recovery.

The beat, as they say, goes on.

Airlines are infrastructure. They might fluctuate and dip, and individual companies might not always make it, but ultimately for 21st Century life to continue someone will always have to lift those jet-powered tin cans off the ground. And Collins sees that continuing for Southwest too.

Get more trading strategies and investing insights from Collins and the other contributors on Real Money.

Be patient with them, and maybe take advantage of a likely bearish short-term to buy in a bit. Collins is confident that Southwest will be back in the long run.