Four Aircraft Income Investments to Purchase as Tailwinds Strengthen
By: Paul Dykewicz,
Four aircraft income investments to purchase as tailwinds strengthen include two industry funds, an aerospace stock and a commercial jet leasing company.
The four aircraft income investments to purchase emerge at a time when the aerospace sector seems to be at an existential crossroads in which its purpose and value are transitioning to a business model and technology aimed at operating in a net-zero-carbon-emission world. The challenges of that change are immense, especially in Europe where much attention and energy are going to the industry’s adoption of a climate-sensitive culture.
The industry increasingly now is expected to show air travel can be done in a sustainable way. It is up to the aircraft manufacturers and suppliers to identify how sustainable flying can be achieved and when it may be possible.
As the aircraft industry recovers from reduced demand due to COVID-19, production rates for building plane are ramping up, according to BofA Global Research. Globally, narrowbody flights are still down by about 30%, while widebody flights are about 45% below normal, the investment firm wrote in a recent research note.
Four Aircraft Income Investments to Purchase Feature Two Industry Funds
Despite aircraft production rates returning toward pre-COVID-19 levels, they have further to go. Indeed, the ramp-up of production remains challenging.
Nonetheless, demand for goods and services is healthy in airlines, lodging, trucking and railroad companies, opined Bryan Perry, who tracks virtually all industries closely as the head of the Cash Machine investment newsletter, and the Premium Income Pro, Quick Income Trader, Breakout Options Alert and High Tech Trader advisory services. In fact, 10 of 11 sectors traded up on two consecutive days during the past week, signaling that investors may want to start selling into rallies rather than purchasing equities on pullbacks, he added.
Paul Dykewicz interviews Bryan Perry at a MoneyShow conference.
However, inflationary forces, global logistical bottlenecks, COVID-19 lockdowns and a strong U.S. dollar create headwinds for many companies, Perry continued. He wrote in his Premium Income Pro service this week that the Fed Watch Tool, which places odds on the U.S. central bank’s next move, shows a 75% probability of a three-quarter point rise and a 25% chance of a 1.00% rate hike. Those predicting a three-quarter point rise were correct when the Fed announced a rate hike of that level on Wednesday, July 27.
Such Fed rate increases are aimed at reducing inflation, but the Consumer Price Index recently reached a 42-year high of 9.1%, so multiple rate hikes in the months ahead may be required to achieve the desired results. The Fed’s initial view that inflation in previous months has “transitory” proven to be misguided.
Pension Fund Chief Chooses Two of Four Aircraft Income Investments to Purchase as Tailwinds Strengthen
An investor interested in a diversified way to invest in this sector should consider an exchange-traded fund (ETF), said Bob Carlson, who heads the Retirement Watch investment newsletter. The ETF with the most consistent returns is Invesco Aerospace & Defense (PPA).
Bob Carlson, who leads Retirement Watch, meets with Paul Dykewicz.
The fund seeks to follow the SPADE Defense Index, which is focused on companies that are involved with aerospace and space operations considered important to the defense sector.
The fund had a 7.09% return in 2021 and is down only 0.34% so far in 2022. It owns 55 stocks with 53% of the fund in the 10 largest positions.
Top holdings are Boeing (NYSE: BA), Raytheon (NYSE: RTX), General Dynamics (NYSE: GD), Northrup Grumman (NYSE: NOC) and Lockheed Martin (NYSE: LMT). Boeing is one of the world’s largest aircraft manufacturers, but it has yet to fully recover from the fallout of two 737 MAX aircraft crashes in 2018 and 2019 that killed a combined 346 people.
However, Delta Air Lines (NYSE: DAL) announced earlier this month that it would buy 100 Boeing 737 MAX 10 jets worth about $13.5 billion at list price with the option to purchase an additional 30 of the aircraft. At the Farnborough Airshow in London, Qatar Airways, a state-owned flag carrier of Qatar, announced on July 21 the purchase of 25 Boeing 737 MAX 10 airliners. Even though Boeing still is awaiting regulatory approval to fly the new-generation Boeing 737 MAX 10 aircraft, the manufacturer has amassed orders for more than 1,000 of them.
Chart courtesy of www.stockcharts.com
ITA Also Is Among the Four Aircraft Income Investments to Purchase
Another aircraft income investment to consider is iShares US Aerospace and Defense (BATS: ITA), Carlson counseled. The fund seeks to follow the Dow Jones U.S. Select Aerospace & Defense Index.
ITA rose 9.39% in 2021 and is down 3.38% so far in 2022. The fund’s top holdings consist of Raytheon, Lockheed Martin, Boeing, Northrop Grumman and Howmet Aerospace (NYSE: HWM).
Chart courtesy of www.stockcharts.com
The least well known of that group of companies is Howmet Aerospace, but it is on the investment radar screen of Michelle Connell, a former portfolio manager who heads Dallas-based Portia Capital Management.
Howmet Aerospace Joins List of Four Aircraft Income Investments to Purchase
Pittsburgh-based Howmet Aerospace is a mid-cap growth stock that manufactures products used in commercial transportation, aerospace and other industries. In the next 10 years, the world’s commercial air fleet will go from 25,000 to 35,000 planes to achieve an average annual growth rate of approximately 8%, Connell said.
“HWM will benefit from this growth,” Connell counseled.
Chart courtesy of www.stockcharts.com
Russia has been a key source of titanium products that are used in aerospace. Since Russia’s invasion of Ukraine on Feb. 24 and continued military action in the country, the United States, the European Union, Great Britain, Canada, Japan, Australia and other nations have imposed economic sanctions in hopes of pressuring Russia’s President Vladimir Putin to halt his attacks.
Howmet Aerospace is one of three suppliers outside of Russia that can step in to fill the void as a titanium supplier, Connell said. In addition, the company’s short-term supply chain issues appear to be resolved, she added.
Even though the invasion of Ukraine as a sovereign country violates international law, Putin has called it a “special military operation” and has dismissed widespread reports of war crimes perpetrated by the troops he ordered into the neighboring country. Documented news reports have found that Russia’s military has shelled hospitals, schools, residential areas, churches, nuclear power plants, oil refineries, a crowded shopping mall and a theater used as a shelter, aside from raping, torturing and executing Ukrainian civilians.
Russia’s Missiles Hit Odesa’s Port Facilities After Agreement to End Grain Blockade
Russia also has been accused of stealing Ukraine’s grain and preventing it from going to Africa and other places where 140 million people face famine conditions. Even though Turkey recently brokered an agreement with the United Nations and Ukraine for Russia to allow safe passage of ships in and out of three Ukrainian Black Sea ports in the Odesa region, it appeared to be violated by Putin’s forces within 24 hours.
Russia carried out a missile strike on port facilities in Odesa, claiming it was targeting military sites rather than grain shipments at those ports that was supposed to ease famine conditions elsewhere in the world and bring much-needed revenue to Ukraine. With ports still blockaded and many Ukrainian airports destroyed, there only are peril-filled routes along the ground for grain to be moved haltingly and in the crosshairs of shelling by Russia’s troops.
Howmet Aerospace not only is poised to benefit from Russia’s decision to continue attacking Ukraine rather than keep its previous trading partners by adhering to international law and withdrawing its troops, but the company has “great financials,” Connell said. The aerospace company’s earnings per share are expected to meet or beat 25% or more during 2022 and 2023, she added.
Another huge plus is that Howmet Aerospace has $500 million in cash, as well as a $1 billion credit line that doesn’t expire until 2026, Connell said. The company also can retain the financing at its current low interest rate, she added.
Wall Street analysts foresee a potential 20% upside in the stock, but its fundamentals may warrant a 30% upside, Connell said. With the company expected to report its earnings on Aug. 4, Connell said it may be “worth establishing” a position beforehand.
Air Lease Corporation (AL) Is Another of the Four Aircraft Income Investments to Purchase
Air Lease Corporation (NYSE: AL), a Los Angeles-based aircraft leasing company, showcased its global reach during the 2022 Farnborough International Airshow in England when it announced on July 18 that it arranged for long-term lease placements for six new Airbus A220-300 aircraft with TAAG Angola Airlines. The Airbus aircraft are scheduled for delivery to the airline starting in 2023 through 2024.
The lease placement for six new Airbus A220s with TAAG is the first to introduce Airbus aircraft to the airline, said Steven Udvar-Házy, executive chairman of Air Lease Corporation. The capabilities of the A220-300 will greatly enhance TAAG’s operational efficiency and expand its route network with the most modern, fuel-efficient aircraft, Udvar-Házy added.
“The A220-300 with its fuel efficiency, range and improved operating economics will progressively replace TAAG’s Boeing 737-700 fleet and allow the airline to optimize and broaden its flight schedule coverage and destinations from Luanda,” said Kishore Korde, executive vice president of Air Lease Corporation.
“We are alive, back in business, breaching with the past to achieve greater results and becoming a reference for Africa,” said Eduardo Fairen, CEO of TAAG. “This partnership emphasizes our commitment to grow and further improve our credibility among international stakeholders while creating a new value proposition for our passengers.”
Air Lease, rated a buy recommendation by BofA, announced long-term lease placements for three new Airbus A321neo aircraft with LATAM Airlines on June 1. The aircraft are scheduled for delivery to LATAM in summer and fall of 2023 from ALC’s orderbook with Airbus.
BoA Sets $55 Price Target on Air Lease as One of Four Aircraft Income Investments to Purchase
BofA set a price target of $55 on Air Lease, using a 0.9x price-to-book value on its 2023 estimate of AL’s book value. The percentage of net book value at risk should disappear by 2023 due to improving market conditions as commercial traffic recovers from pre-pandemic levels by 2023 and riskier assets are sold as they come off lease.
Potential risks to BofA’s price objective for Air Lease include global economic weakness, fuel price spikes, any inability to access capital markets at attractive terms, terrorism and geopolitical events. Additional risks entail a downturn in aircraft values due to rising supply, flattening yield curve, continued sharp appreciation of the U.S. dollar, changes in equity risk premiums and overall stock market and financial company valuations.
The price target could be beaten, BofA forecasts, if economic growth is stronger than expected, recovery of air travel tops current estimates, fuel prices fall, the U.S. dollar weakens and credit can be obtained at modest rates.
Chart courtesy of www.stockcharts.com
U.S. COVID Deaths Near 1.028 Million
Aircraft stocks are closely affected by COVID-19 cases, deaths and lockdowns. As a result, it behooves investors to understand the latest trends.
U.S. COVID-19 deaths climbed for the second consecutive week by more than 3,000 to total 1,027,909, as of July 27, according to Johns Hopkins University. Cases in the United States jumped by nearly 900,000 for the second straight week to 90,735,621. America still holds the undesirable distinction as the country with the largest number of COVID-19 deaths and cases.
Worldwide COVID-19 deaths jumped by more than 14,600, down from 19,000, during the past week to reach 6,389,025 as of July 27, according to Johns Hopkins. Global COVID-19 cases rose more than 7.2 million during the last week, compared to 7.5 million the previous week, to hit 572,403,044 by July 27.
Roughly 78.7% of the U.S. population, or 261,204,035, have received at least one dose of a COVID-19 vaccine, as of July 20, the CDC reported. Fully vaccinated people total 222,950,194, or 67.2%, of America’s population, according to the CDC. The United States also has given at least one COVID-19 booster vaccine to 107.5 million people, up 500,000 in the last week.
The four aircraft investments to purchase as tailwinds strengthen position those who buy shares to benefit. With the highest inflation in 42 years, a second consecutive Fed rate hike of 0.75% and other rate increases likely to follow, the flight of the four aircraft investments to purchase taking shape despite supply chain snags and Russia’s unrelenting attacks on Ukraine.