Flying with the Airline Industry

Posted on September 29, 2005 , filed under Business Gossip, Stocks | Print This Post

It’s amazing how fast stocks of airlines move in conjunction with any news about oil. Speculation over the rising prices in jet fuel has sent the stocks of major airlines in a dizzying spin downwards. Continued high prices in oil put undue economic pressure on the country. Airlines serve a critical function in the global transportation network and without the major carriers in operation, global business would be severely impacted. Post 9/11, Congress has given the airline industry billions of dollars in monetary assistance, abatements and concessions. To pick the winners in an unusually volatile industry, sometimes means you have to pick companies that have shown relatively even or slightly positive performance. This isn’t a great state of affairs overall, but we are looking for stability as the industry climbs out of a stump. You may not make the most money following this strategy, but I believe it’s safer than gambling on DAL, Delta Air Lines Inc. or NWACQ.PK, Northwest Airlines Corp., both of whom have announced recent bankruptcies.

Part of being a successful investor is also being a successful business person. Technical and momentum traders will always, I believe, make more money in the short run than investors looking for solid businesses. I believe long term value investors like Warren Buffett will always outperform purely technical or momentum traders, because they are not only investors, they have solid business principals that guide them, along with the ability to see the numbers. I believe this is also what RawGreed is about. I try to identify situations where greed and speculation has created an opportunity to purchase a stock with a reasonably solid foundation. I’ve watched greed overtake all logic and reasonability. A RawGreed recommendation is one that goes against the tide of greed.

After writing my price targets for CAL and AMR I came across an interesting Marketwatch article that seems to mirror my thoughts on the two airlines. For now airlines like United, Delta and Northwest are giving the industry a bad reputation and dragging down the prices of other airline stocks. I believe most analysts have reached a consensus to avoid the airline industry. If you are reading this, you already know that I don’t trust what the majority of analysts have to say. By the time most analysts are in consensus on buying airline stocks, the opportunity to buy them will be over. I look at airlines as a critical part of our global transportation network. I believe airlines won’t go away anytime soon, regardless of the doom and gloom picture that so many individuals are painting.

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