Flight Centre Travel Group Ltd (ASX: FLT) and Webjet Limited (ASX: WEB) shares are still at low levels.
So, is it time to throw the Flight Centre and Webjet shares into the bargain basket?
FLT share price
WEB share price
Another lockdown in Victoria
Just when things looked like returning to normal, Victoria has been hit with another COVID outbreak. This is a reflection of the unpredictable nature of the virus, which continues to evolve.
So, it’s understandable that the market has a pessimistic outlook on travel.
Given travel shares are cyclical in nature, the Flight Centre and Webjet shares are subject to external market forces.
As one of the great investors, Peter Lynch said, “The fact that the cyclical game is a game of anticipation makes it doubly hard to make money in these stocks. The principal danger is that you buy too early, then get discouraged and sell. It’s perilous to invest in a cyclical without having a working knowledge of the industry.”
So if your circle of competence lies within the travel industry and you are thinking long-term, these travel shares may be sound investments.
Bargain basket?
Lynch also noted cyclical shares can be a great way to make a quick buck if you buy them at the bottom.
A good example is bank shares like Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB). The Australian economy is built on the foundation of banks, so it made sense to buy bank shares at the bottom.
If you view Flight Centre and Webjet through a similar lens, you will be able to get a clearer picture of the importance of these businesses to the economy.
It seems Flight Centre and Webjet have a strong foothold in their respective markets. So, I would consider whether these businesses will continue to dominate and thrive once borders re-open.
Once you have a better understanding of the quality of their competitive advantage, the valuation of these shares may be in bargain territory.
