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Which Sector Is Worst, Homebuilders Or Airlines?



May 25, 2011 – Comments (3)

The homebuilder, and airline sectors give us tremendous trading opportunities on a daily basis, however, these two sectors are simply terrible long term investments. The current economic climate simply cannot support these industries.

Since August 2005, the housing stocks have tumbled lower and remain near the low end of their charts. Since the March 2009 stock market lows, the homebuilder stocks have given short term traders good opportunities on a swing and day trading basis. This sector is still just good for traders and not for investors that are looking to hold for the long pull. Leading homebuilder stocks such Toll Brothers Inc.(NYSE:TOL), Lennar Corp(NYSE:LEN), and KB Home(NYSE:KBH) seem to trade like birds of a feather who flock together. These stocks seem to trade in a trading range and do not have any institutional buying accumulation. This sector is fighting an uphill battle as single family foreclosures remain at all time highs. This is truly a supply and demand story, and in this case there is just too much supply.

The airline sector topped out in January 2007 and has really not recovered since that time. Sure, this industry group will bounce higher when oil prices decline from time to time, however, when one looks at the way the U.S. Dollar Index has traded over the past 10 years how can we ever expect oil to decline significantly. As long as oil remains high this sector is only good for short term traders. Leading airline stocks such as AMR Corp.(NYSE:AMR), United Continental Holdings Inc.(NYSE:UAL), and Delta AirLines Inc.(NYSE:DAL) have all consolidated over the years and still have trouble generating a profit. The business model is broken for most of these legacy carriers and that is reflective in the stock trends.

The homebuilder and airline sectors are two industry groups that are favorable to the short term trader. These two sectors face major headwinds as they are very sensitive to the current economic conditions.

Nicholas Santiago

3 Comments – Post Your Own

#1) On May 25, 2011 at 4:37 PM, chk999 (99.97) wrote:

Long term? Airlines. They have huge fixed costs and small incremental costs, so there is always pressure to drop fares to put people in seats. This means nobody has any pricing power. 

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#2) On May 25, 2011 at 5:00 PM, buffalonate (68.40) wrote:

I have been buying several of the homebuilders recently because eventually the housing market will bounce back.  Airlines always struggle to be profitable.  Several of the homebuidlers have been buying up property on the cheap and renting it out until prices correct down the road so they can sell for a profit.  I think that is really good strategy. 

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#3) On May 25, 2011 at 5:30 PM, ETFsRule (< 20) wrote:

Airlines. They're always a bad investment.

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