Airline stocks are under serious pressure.
Shares of JetBlue and American Airlines fell more than 9% and 12%, respectively. Earlier Wednesday, Stifel downgraded both stocks to hold from buy on concerns that airlines could pause flights for some time during the summer travel season.
As airline executives rush to find solutions to stem the debilitating losses, which may include consolidating flights to certain cities, strategist Mark Tepper said he still has hope for some stocks in the group.
Still, he warned, companies "on the receiving end of bailouts" during crises don't usually see their stocks outperform in the long run. He noted that financial stocks underperformed the S&P 500 by roughly 4% per year from October 2008 to December 2019.
Delta's stock lost over 16% in Wednesday's trade. Shares of United fell nearly 19%. Both stocks were up more than 3% in Thursday's premarket.
"If I had to pick one, I would go with Delta," said Tepper, president and CEO of Strategic Wealth Partners.
"With Delta, you have no 737 Max exposure, so, we can take that problem off the table for them," he said. "They've got the best maintenance team in the business, and that good maintenance team really helps them to extend the useful life of all of their aircraft, which obviously ramps up their profitability. And they've got the best partnership out there, the gold-standard loyalty program partnership with American Express, which fortunately continues to deliver money to them right now in these tough times."
In the same interview, MKM Partners chief market technician JC O'Hara pointed to some promising action in a chart of the JETS ETF.
"Heading into February, this ETF was trading right around 30, and then the February weakness struck the entire market and ... JETS was basically cut in half," O'Hara said.
Now that JETS has started to show signs of consolidation, it's worth asking: "Is this consolidation within the context of a greater bear market, meaning ... we have another leg lower? Or is this consolidation the start of a basing pattern?" O'Hara said.
While he felt it was "a little too premature to answer that question," investors itching to buy the dip should keep their eyes on one key level, the technician said.
"If you do think the worst is behind us — and that's not necessarily what I'm thinking here, but if you do think the worst is behind us — I would still stay on the sidelines and watch the 20-day moving average," which was at roughly $16.50 on Wednesday, O'Hara said. JETS ended trading at $13.10.
"I think the 20-day moving average has been working as great resistance," he said. "If price can get above there, I think maybe we'll have more of an oversold bounce here. So, ... we still have some work before we test that level, but we get above the 20-day, I think we might be in for further upside."
Even so, the "psychological impact" of the coronavirus outbreak could last for a while in a country like the United States, where consumers could easily opt to drive rather than take domestic flights due to cheap gasoline prices and lingering worries about crowds, Tepper said.
"Even if the virus is gone, will the consumer walk into a crowded movie theater on August 15th? Will the consumer board a flight on August 15th? I don't know, maybe not," Tepper said. "So, I think the psychological impact is going to cause quite a bit of demand destruction for at least a year if not more."
O'Hara looked overseas for his top stock pick in the space.
"It's pretty hard to find a good-looking airline chart in this market," he said. "Most of these airlines are trading at a 52-week low. So, the stock charts are telling me that this is probably not an area where you want to invest."
"If I had to pick one, I would actually go around the globe," he said. "My favorite airline chart here — and that's not saying much because it's the best of a very weak group of names — is the Australian airline company Qantas. It's actually coming off its lows much better than a JetBlue or a United or an American."