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Why Shares of Azul Are Up Today

By Lou Whiteman – Oct 19, 2020 at 2:50PM

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A leading Brazilian politician is optimistic concerning vaccine trials.

What happened

Shares of Brazilian airline Azul (AZUL -3.20%) were up more than 6% on Monday afternoon after a leading politician in Brazil talked up the effectiveness of a COVID-19 vaccine.

So what

Azul shares are down more than 60% year to date, but compared to other Latin American airlines, it has held up pretty well through the pandemic. The company seemingly has the capital and commitments in place to avoid a bankruptcy but is unlikely to rebound until the pandemic is over and traffic returns.

A plane landing at night.

Image source: Getty Images.

That could take years, but the stock got a boost on Monday thanks to comments by Sao Paulo Governor Joao Doria. The governor, according to Reuters, talked up the potential of a vaccine developed by Sinovac, saying initial data gathered during clinical testing in Brazil has been positive.

Sao Paulo is Brazil's economic engine. Improved confidence there would help keep Brazilian airline traffic numbers on an upswing, hopefully helping to fuel an airline recovery.

Now what

Shares of Brazilian airlines, like their U.S. counterparts, tend to trade up and down based on what is going on with the pandemic and the outlook for a resolution. There's some logic to it, but long-term investors would be better served by blocking out the day-to-day noise.

Azul appears well positioned to survive, but the stock is not going to get airborne until traffic returns. That's likely a year or more off, assuming quick progress on a vaccine. A politician's optimism is not going to make that recovery happen any quicker.

Given the prolonged timeline and the history of economic turbulence in Latin America that could complicate a recovery, I see no reason to rush in and buy ahead of a possible recovery.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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