0

I'm looking at investing in some stock since the market is plummeting right now, particularly Airline stock because travel is way down due to coronavirus. The idea is that if international travel is eventually halted to an almost standstill, the stock prices will be minuscule, then once coronavirus is mostly gone and travel starts again, I can sell my stocks for a profit. Is this a good idea, or am I getting the idea wrong? I've read that Airline stock is generally back. Should I go with a market order or a limit order? EDIT: would shorting the stocks be a better option?

7
  • 4
    I'm voting to close this question as off-topic because requests for specific investment buy/sell advice is not allowed.
    – Ben Miller
    Commented Mar 3, 2020 at 1:40
  • 1
    @Ben Miller - I'm going to disagree with you on this one. The OP isn't asking for specific investing advice like which airline to buy. He's asking about the generic concept of buying low and selling high but in the context of the coronavirus outbreak. Asking about the pros and cons of a market order versus a limit order is also related to investing. Commented Mar 3, 2020 at 1:52
  • 2
    I was expecing answers like historical analysis of stock market returns during past pandemic.
    – base64
    Commented Mar 3, 2020 at 2:43
  • If you expect the stock prices will be miniscule, you should wait until they are miniscule before buying them, no? Unless you are not sure. Commented Mar 3, 2020 at 13:48
  • 1
    I don't know about airlines specifically but panic sell-offs like last week's are often followed by a "dead cat" bounce (which we may be seeing this week) and then a re-test of the lows. Plus, the virus headlines may well get worse as it spreads in Europe and the US. I'd suggest it might be prudent to wait a while.
    – padd13ear
    Commented Mar 3, 2020 at 16:02

3 Answers 3

4

Recently, travel, leisure, airline and cruise stocks have been punished by the coronavirus outbreak. We've seen this before though not for the same reason when after 9/11, insurance and airlines stocks were hammered. Just be aware that you have no way of knowing if if your bottom fishing is timely or whether you're trying to catch a falling knife. So be prepared to hold for a bit if the headlines get worse.

If you believe that the companies that interest you are sound long term prospects then this would be the classical buy low and sell high approach.

Market orders are for must have trades now. Limit orders are for a specific price, understanding that you may miss the trade because you waited.

4

The idea is that if international travel is eventually halted to an almost standstill, the stock prices will be minuscule, then once coronavirus is mostly gone and travel starts again, I can sell my stocks for a profit.

A disruption that is expected to be temporary would not lead to a "minuscule" stock price (unless it is seen as likely to put the company out of business before it can recover), because investors value a company based on future (not just current) earnings. If the stock price goes low enough that the expected end of coronavirus would provide a significant profit, traders would quickly bid it back up.

The efficient market hypothesis suggests that the current stock price already reflects the best estimate of experts for the value of the company including the currently projected impact of coronavirus, and is about as likely to go down as up from here as more information is obtained.

To invest as you propose, you would either think that coronavirus will be less severe or long-lasting than the consensus, or that the stock price is depressed by irrational fear-driven or illiquidity-driven selling that cool-headed traders have not yet been able to equilibrate. These things are possible, but because there are many other well-trained and well-funded people trying hard all the time to be the "cool heads" and capture any mispricing, I'd say the odds are against you.

2
  • You still stand by the answer with Delta for example being down 40% since you wrote it ?
    – xyious
    Commented Mar 17, 2020 at 17:13
  • @xyious My quotes say it's down 30% (from about $47 to $33). My answer did not advocate any particular belief on the course of coronavirus, but rather that an individual investor is unlikely to make a better projection at any given time than the collective judgment of the market. My understanding is that the effects of coronavirus have become more serious than they were expected to be, and that is why stocks are down further. Stock prices are still far from minuscule. The value remaining reflects that major company earnings are expected to recover eventually.
    – nanoman
    Commented Mar 17, 2020 at 17:54
1

Look for an airline with a low debt-to-equity ratio. But since airlines are capital-intensive I doubt that there will be a low-debt airline.

But if the airlines get into financial trouble, a government bailout would be likely and the airline stocks could rise on the bailout. But then the stocks could fall later if airline trouble continued.

One technique of investing in companies or industries that are in current trouble is to buy the senior bonds and short the common stock. Hold the bond position into re-organization and the senior bond-holders become the new stockholders.

2
  • would 0.6 be considered low?
    – Jodast
    Commented Mar 3, 2020 at 4:23
  • 1
    A debt-to-equity ratio of 0.6 probably refers to 60% and is often given as 60. That's about as low as an airline would be expected to have.
    – S Spring
    Commented Mar 3, 2020 at 4:37

Not the answer you're looking for? Browse other questions tagged .