Forget easyJet shares! Here’s what I’d buy instead

It seems fair to say that 2020 has been a year budget airline easyJet (LSE: EZJ) will want to forget. As if the coronavirus pandemic and subsequent grounding of flights weren’t bad enough for business, the company was also recently forced to announce that millions of customer details were hacked back in January. 

Despite all this, those buying the stock back when markets crashed in March will have done very well. Indeed, easyJet’s share price was flying a little over 60% higher yesterday than where it was in mid-March.

Are the shares are still worth buying? Not in my view.

Reasons to steer clear of easyJet

The arguments against buying now are both plentiful and powerful.

First, investor expectations may be unreasonably high. Even if the company manages to get more planes in the air, you’d need to be a real optimist to think that things will return to how they used to be anytime soon.

Ask your nearest and dearest whether they’d be happy to fly tomorrow. I’ll bet the majority won’t, even if middle seats were kept free. Also consider the increased costs associated with keeping planes clean and the need to offer big discounts to attract flyers in an already highly competitive industry.

All this surely has implications for profits and, ultimately, the share price. Will those who’ve recently made a packet be willing to stick around? I’m not so sure, especially as we become more aware of the full economic impact of the pandemic. Even Warren Buffett, arguably the greatest proponent of buy-and-hold investing, dumped all his airline stocks not that long ago.

Another thing worth considering is that a not-insignificant portion of easyJet’s shares are being shorted. In other words, a fair number of market participants are now betting the share will fall. These highly researched shorters don’t always get their calls right but it takes guts to go against them.

So, what would I buy instead?

As an alternative, I would suggest investing in quality, market-leading companies that, crucially, tend to be resilient in good times or bad. I wrote about one such firm earlier this month. 

Of course, if you really want some exposure to easyJet, you could push equal amounts of cash into all of the UK’s listed airlines and cross your fingers. This is less dangerous than backing the Luton-based business on its own but it does feel more akin to gambling than investing to me. It’s still a poor way of diversifying your capital as well. 

A less risky, albeit potentially less lucrative alternative would be buy a cheap FTSE 100 exchange-traded fund. This ensures at least some of your money is invested in easyJet. The remainder is spread around the rest of the UK’s biggest companies.

Another consideration, particularly in light of easyJet’s recent woes, is getting some exposure to cybersecurity stocks. The growing need for companies of all sizes to protect themselves from sophisticated hackers makes this a great option for long term defensive investors, in my opinion.

If you’d rather not sort the wheat from the chaff, then the iShares Digital Security UCITS ETF could be ideal. It tracks a basket of 113 stocks, roughly half of which are based in the US. The ongoing charge is 0.4%, making this a relatively cheap way of getting on board this mega-trend.