In my coverage of easyJet (LSE: EZJ) shares this year, I’ve generally been quite bearish on the stock, due to the uncertainty associated with Covid-19. For example, in September, I wrote: “I just don’t think EZJ offers a good risk/reward proposition.”
Meanwhile, in October, I wrote: “I won’t be buying easyJet shares for my portfolio. To my mind, the risks are too high.”
It’s fair to say this bearish view on the airline stock now looks justified. On Friday, easyJet shares were absolutely hammered on the back of concerns over the new strain of the coronavirus, Omicron. When the UK market closed, the EZJ share price was sitting at 496p, a long way below the 699p it started the year at.
So what’s my view on easyJet now after the latest share price crash? Am I still bearish on the stock, or has the recent fall created a buying opportunity for me?
easyJet’s share price: where to from here?
The way I see it, if I bought easyJet shares for my portfolio today, I’d be taking a speculative punt (which is not my style).
Sure, there’s a lot of pent-up demand to travel right now. However, this new coronavirus strain – which has been designated as one of ‘concern’ by the World Health Organisation – creates a high level of uncertainty for travel stocks as early reports suggest it could be both highly transmissible and resistant to vaccines.
This uncertainty means it’s very hard to predict where easyJet’s share price will go next. If Covid news is encouraging, the share price could bounce. However, if the situation deteriorates and European countries reintroduce travel restrictions (the UK has already announced new measures here), the shares could keep falling.
Is EZJ a good long-term investment?
What about the long-term though? Is easyJet a good stock to buy and hold in my portfolio for the long run? I don’t think so. One thing I’ve learnt over the years is that airline stocks tend to be poor long-term investments.
One reason for this is that so much can go wrong. High fuel prices, terrorist attacks, plane crashes, recessions and, of course, global pandemics, can all impact profits. Additionally, it takes a huge amount of capital to keep a fleet of aircraft running smoothly. And, over the long run, airlines generally struggle to earn a return in excess of their cost of capital.
I’ll point out that I’m not the only one who sees airline stocks as poor long-term investments. Fundsmith’s Terry Smith describes airlines as a “truly awful sector” from an investment point of view. Given Smith’s incredible track record, I think he’s probably worth listening to.
easyJet’s share price could bounce
It’s worth noting that airline stocks like easyJet can be good ‘trades’ at times. It’s often possible to pick up gains of 10%, 20%, or even 50% if investors get their timings right. We could see that kind of share price bounce here in the near term if Covid-19 news is positive.
However, I’m a long-term investor and not a trader, and I’m looking for much bigger gains than this. My goal is to generate gains of 100%, 200%, 500% and more from stocks over the long term.
I think I’m unlikely to generate that kind of gain from easyJet shares.