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If You Have No Common Sense, Buy These StocksBy Jeff ClarkThursday, June 19, 2008 It's hard to imagine airline travel getting any worse.
We wait in two-hour check-in lines, suffer the indignity of homeland security personnel confiscating our water bottles and three-ounce containers of shampoo, and get herded onto an aircraft like cattle going to slaughter...
Then we cram ourselves into seats built for anorexic 7-year-olds; pay $2 for a headset, $10 for a turkey sandwich, and $6 for a screw-top miniature bottle of wine; and sit on the tarmac for three hours because the pilot flunked his sobriety test and it took that long to track down a sober replacement.
But we still fly.
There is no real alternative to airline travel. So despite being treated like terrorists, we pay up for the ticket prices and put up with the fuss because it's the only way to get where we need to go.
If the crowds at the airport are any indication, demand for airline travel is as strong as ever. And given how stingy the airlines are with the basics, you'd think they'd be making money like never before.
Of course, you'd be wrong.
Airlines are a horrible business. For years, they've been plagued with high labor costs, intense competitive pressures, and gross overcapacity. Fuel costs were stable, but all these other issues made it impossible for airlines to turn a profit.
It's ironic that now, just as airlines have gotten all these other issues under control, they have to deal with exponentially increasing fuel costs.
Airlines are battling the higher cost of fuel by increasing efficiencies elsewhere. It won't help them turn a profit today or tomorrow. But it will make them leaner and meaner. As soon as the price of oil peaks and starts to head lower, airline companies should do quite well.
Today it seems utterly insane to buy into the airline sector. After all, oil is rapidly approaching $150 per barrel, and airlines stand almost no chance of turning a profit.
But therein lays an opportunity...
Nobody with an ounce of common sense is going to own an airline stock today. Investors have been selling the stocks off all year. And that selling pressure looks like it climaxed last Thursday, when nearly every stock in the sector fell to a new 52-week low.
At some point, even a bad stock becomes a good buy at the right price.
So, as tough as it is to do right now, you might want to follow the strategy we're using in the S&A Short Report… which means holding your nose and buying the airline stocks for a quick rebound.
Best regards and good trading,
Jeff Clark
Further Reading:
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Oil continues to dominate... drillers Ensco, Tri-Valley, Unit, and Pioneer at new highs. Oil shipper Hornbeck Offshore up 70% since last year.
Big-cap financials tumble... Bank of America, AIG, Fifth Third Bancorp, and SunTrust hit new lows.
Tire makers Goodyear and Cooper make 52-week lows.
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