My Crazy Call: Buy Airlines. Now.
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)