Your 2022 Flight Plan

One stock to take to the sky...

Written by Jimmy Mengel
Posted January 4, 2022

Dear Outsider,

Several years ago, when my children were just learning about geography, I was spinning around a globe and showing them different parts of the world. They were enamored. 

It wasn’t just in the typical way a globe makes everything look so close together, or finding your actual home on the map. 

It was the fact that they hadn’t even heard of many of these places. My son Hank asked if Bhutan was pronounced “button.” My daughter Julia was delighted that Madagascar, which was a popular kids movie at the time, was a real place that you could actually visit! 

I regaled them with my travel stories about far away places like Austria and Morocco; the former is part of my heritage and the latter is where I spent my honeymoon. I’ve visited both and they are some of the best memories I have.

So I came up with a wild idea…

“Kids, when you turn 10, you can pick anywhere in the world you’d like to go, and we’ll go. So start thinking about it now.” 

They thought fast. Julia, who is by far the more impulsive one, immediately shouted, “Paris!” She is a lover of art and pastries, and really wanted to see the Mona Lisa and the Eiffel Tower. That choice did not surprise me one bit. 

“Done deal,” I said. 

Hank, on the other hand, is far more methodical and took a few weeks to study the globe and do some research. One morning when I was bleary-eyed, sipping coffee, and making eggs for their breakfast before school, Hank came up to me. “Let’s go to Alaska,” he said, very matter-of-factly. 

Alaska, eh? I didn’t see that coming at all. I had pegged him for a Hawaii or South America kind of chap. But I was impressed by his sense of adventure and now that he’s turning 10, I’ve dug deep into what our trip to Alaska might look like. We’re likely to fly into Anchorage, spend some time whale watching on glaciers, stay up late gazing at the aurora borealis, then take a train to Denali State Park.

I'm excited to travel somewhere different and alien with my son — I'm actually bringing my father into the mix to make for an intergenerational adventure. 

While I was researching flights, it occurred to me that there is a pretty great investment angle to all of this...

Alaska Air Group, Inc. (NYSE: ALK) could be a very interesting stock right now. As we all know, the coronavirus pandemic has continued to beat down airline stocks as flights have been grounded all around the world. 

By the end of 2021, over 7,800 flights coming or going to the U.S. were canceled, and 1,100 of those were last Thursday. It was a very somber Christmas and New Year's for the thousands that were left stranded in airport terminals all over the country.

It’s wreaked havoc on airline stocks over the last year. While most major airlines saw a great “recovery” bounce, Southwest, American, and Delta have all dropped: 30%, 21%, and 17% respectively since April. Alaska Air Group dropped 24% during that period as well. 

However, Alaska Air Group is well regarded as a fundamentally stable company that has a niche market it works with and plenty of interested travelers waiting in the wings as travel opens back up again over the next year. It has a $6.7 billion market cap — half the size of American Airlines and four times smaller than Southwest. It is meaner and leaner than its larger competitors. Alaska has also announced plans to replace all of its Airbus A319s and A320s with Boeing 737 MAX 9s. Those planes have almost 20% better seating capacity and 25% less fuel burn.

I believe that the airline will be somewhere near post-pandemic levels by the middle of the year. And I’m not alone: of all of the stocks on the S&P 500 that are rated a “buy” by analysts, Alaska Air Group seems to have quietly become the darling of them all. If you average out all of the ratings, Wall Street has a 50% upside for the company, with 93% of analysts calling it a buy.

Personally, I think it can rebound even higher. We may be looking at a double here. While the other airlines were burning cash quicker than jet fuel, Alaska broke even in Q2 and traffic tripled last summer, compared to 2020. We will — God willing — get over the fact that COVID-19 will be around to stay in various forms. 

The sky is the limit, as they say.

Personally, I can't wait to board Alaska Airlines later this year and likely pay for my tickets with the gains I got from the company itself.

Happy 2022, everyone. Pick yourself an adventure to enjoy.

Godspeed,
jimmy-mengel-signature-fixed

Jimmy Mengel

follow basic @mengeled on Twitter

Jimmy is a managing editor for Outsider Club and the investment director of several personal finance advisories, The Crow's Nest, and The Adventure Capitalist For more on Jimmy, check out his editor's page.

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