Rising inflation pressures spooked stock markets in April.of S&P500For example, it lost more than 25% of its value, making it its worst month since September last year. moreover, Nasdaq and Dow followed suit with similar losses. Many would say that the current market scenario is a doom for the Fed, which initially supported the market but is now taking a more hawkish approach. So with interest rates likely to remain high for some time, this could be a good time for investors to consider avoiding travel stocks.
Travel stocks are often classified as growth cyclicals, a category that benefits greatly from expansionary monetary policy. With the economy booming and money plentiful, travel stocks tend to shine, offering investors great upside potential. However, it's unlikely to work out right away, so it's best to avoid these travel stocks by selling them.
Travel stock to avoid: Carnival (CCL)
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Major cruise company operating company carnival (New York Stock Exchange:CCL) saw an incredible rise in the stock market last year. Despite macroeconomic headwinds, CCL stock rose an impressive 61% on the back of strong performance. Much of these gains were due to risk-on sentiment in the stock market last year, which has faded in recent weeks.
Nevertheless, there's a lot to like about CCL and its long-term prospects. The company recently reported another strong profit, comfortably beating expectations for both divisions. First quarter (Q1) sales jumped 22% to $5.41 billion on a year-over-year (YOY) basis, marking impressive progress in returning to profitability in the second half of the year. Additionally, there was a record $7 billion in deposits in the first quarter, effectively ushering in a monumental wave season.
While all may seem fine and fine with CCL, there are several reasons why it is an unattractive bet in the short term. First, the stock has performed incredibly well over the past year, but short-term upside potential appears limited given the current interest rate situation. The stock is down 10% this month, and we expect further declines in the future as it has to weather incredibly tough competition in the coming quarters. Additionally, the Baltimore Bridge disaster is expected to reduce CCL's 2024 profits by $10 million. Considering all this, CCL stock still trades at an impressive 47.50 times his 12-month GAAP earnings.
American Airlines Group (AAL)
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american airlines group (NASDAQ:AAL) reported a lackluster Q1 2024 report last week, leaving shareholders with a bitter taste in their mouths. The world's largest airline reported non-GAAP EPS of -34 cents, 5 cents less than expected. Additionally, sales of $12.6 billion were roughly in line with consensus estimates. As a result, AAL stock has fallen about 12% over the past month, lagging the broader market by a considerable margin.
AAL wasn't the flashiest investment last year and ended up in the red with a -1% return. Although sales growth continued to be strong, the performance was particularly challenging amid headwinds. Additionally, the company made good progress on its debt reduction targets, one of the biggest talking points in the airline industry during the pandemic.
However, I don't expect this airliner to captivate the market with its quarterly report any time soon. Analysts expect sales to increase 4.2% in the next quarter, with four downward revisions and four positive EPS revisions. Boeing's (New York Stock Exchange:BA) Distress is likely to have a substantial financial impact. In fact, the airline followed other industry peers in cutting routes, citing Boeing's delays.
Spirit Airlines (SAVE)
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spirit airlines (New York Stock Exchange:keep) is another low-cost airline with limited upside potential. The company's stock price is down nearly 78% year-to-date (year-to-date) and almost 27% this month alone. Perhaps one of the main reasons for this performance was the US Department of Justice's decision to block the merger with the US. jet blue (NASDAQ:JBLU).including experts investor place Eddie Pan believes Spirit may consider bankruptcy and liquidation of its assets after the debacle.
Ironically, at Spirit Airlines, costs are rising significantly faster than revenue growth. From 2019 to 2023, the company's total sales increased by approximately 40%. In comparison, cost of revenue increased by 81%. Clearly, the company's business model is not working, which continues to strain its financial flexibility. It has a disappointing financial strength rating of 3 out of 10 from GuruFocus, and its Altman Z-Score is firmly in the distress zone. Therefore, SAVE him is one of the airliners that you want to avoid at the moment.
On the date of publication, Muslim Farooq did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer and are subject to InvestorPlace.com Publishing Guidelines..
