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goldminingXpert (28.63)

My Crazy Call: Buy Airlines. Now.



February 24, 2011 – Comments (5) | RELATED TICKERS: LFL , TAM.DL2 , JBLU

If you believe the market correction we've had this week does not mark the beginning of the end of this bull market, then you ought to be buying airline stocks hand-over-fist. And yes, I am aware of oil's mercurial rise on the back of sweeping unrest across North Africa. Airlines are obviously extremely vulnerable to $100 per barrel or higher crude. Despite airlines' complex hedging strategies to protect against price spikes, they are still hurting from this sudden price surge. The recent trend of rising profits across the industry will likely be reversed in upcoming quarters.

So what's there to like about airline stocks? The market is simply overreacting to the geopolitical news we've had so far. Egypt is not a first-tier oil producer, and even though Libya is a significant player, it is not among the world's top-10 producers. And not all of Libya's production has been shut down at this point. The market is pricing in much more unrest than there currently is. This baked-in uncertainty includes a fairly-high probability that the political contagion will spread to Saudi Arabia when in fact there is little evidence of this worst-case outcome is about to happen.

There's no shortage of oil around the world presently. There's actually a glut of supply in the Americas, (continue reading at Seeking Alpha)

5 Comments – Post Your Own

#1) On February 24, 2011 at 10:52 AM, Pick1es (25.79) wrote:

I was considering buying airlines a couple weeks ago, but I still can't find one that I really want

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#2) On February 24, 2011 at 11:19 AM, goldminingXpert (28.63) wrote:

LFL, TAM, CPA, and JBLU are my current picks as can be seen at the end of my article.

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#3) On February 24, 2011 at 1:00 PM, EnigmaDude (62.26) wrote:

Not so crazy.  I also like RJET at the current price.  This sort of contrarian thinking often results in substantial gains.  Good post.

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#4) On February 24, 2011 at 5:42 PM, TSIF (99.98) wrote:

Unfortunatly, a second major catalyst for this quarter has been the weather, at least from the standpoint of anything that has midwest/northern US destinations, such as Jet Blue on your list.   The hit had to be substantial to keep so many flights on the ground and reroute others.

Still JetBlue has serious resistange around $5.50, close to where it is now.  RJET would be attractive sub $6.00.  If they can ride through a bad quarter and the oil spike then I would agree. They seem to be able to raise prices successfully.  All the airlines seem to be supporting the higher prices instead of under cutting each other.

Interesting Risk/reward play, thanks for mentioning it.

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#5) On February 24, 2011 at 11:40 PM, goldminingXpert (28.63) wrote:

I actually threw JBLU on there mostly as an afterthought to include a US name. I have great respect for JBLU management. That said, TAM is my pound-the-table pick, and the market treated it nicely, up more than 4% today vs. 1.5% for the XAL airline index.

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