Pro warns against travel stocks: This ‘perfect scenario’ needs to happen first

Investors assuming that a vaccine against the novel coronavirus would instantly fix the travel industry and lift travel-related stocks are mistaken, according to one pro.

Long road ahead

Thursday’s Thanksgiving holiday is synonymous with travel but the COVID-19 pandemic has severely impacted a lot of people’s plans to visit friends and family. Data from travel website Expedia shows 60% of U.S. consumers are not traveling for Thanksgiving, according to CNBC. On average, those who are traveling are cutting their average distance from 450 miles away from home last year to 250 miles away from home this year.

If anything, this shows that expectations for a resumption in travel are a lot further away than previously expected. In the meantime, a lot of the travel companies will have a “very, very hard time” staying afloat and making a profit, BK Asset Management Managing Director of FX Strategy Boris Schlossberg said on CNBC’s “Trading Nation.”

The near-term picture for travel is far from encouraging as COVID-19 cases continue to soar not only in the U.S. but in many Western countries.

“At this point, the behavior of the consumer is going to take much longer than the market thinks to come back for these companies to really perform well,” he said. 

As such, travel stocks that have gained in recent days and weeks are overbought and “very vulnerable to a sell-off” as consumers show little to no interest in traveling. The only event that can save the group is an “absolutely perfect scenario” in which a vaccine will not only immunize everyone against the pandemic and it will translate to a new desire for people to travel again.

Global Jets ETF: Getting ahead of itself?

One of the more closely tracked exchange traded funds in the travel industry is the US Global Jets ETF (NYSE: JETS). The ETF includes airline operators and manufacturers from all over the world.

The ETF was higher by nearly 5% Tuesday morning and Piper Sandler’s Craig Johnson might know why. He explained on the same “Trading Nation” segment that investors are “looking beyond this near-term travel season.”

The ETF traded lower in June and July when COVID-19 cases started to spike higher, he said. But now that cases are spiking even higher, the stock is gaining in value.

Investors are “focused on that vaccination” and a break above the $21 per share level is a bullish sign, Johnson said. The move could signal a “new leg higher” on the ETF to as high as around $30 per share.