Undervalued Sector

I remember reading about Saul saying that no matter how good the returns of chinese stocks he will run for the hills when it comes to them.

Their is another sector that is putting up tremendous returns and you pretty much hear nothing about it on the motley fool website in general. Because the business model used to be horrible. But now these businesses operate monopolies and some have been putting up triple digit returns in the last few years.

As many may have already have guessed, it’s the Airlines. Which I bought in heavily last year to beat the market. They have consolidated so much that they for the most part don’t compete in the same markets and prices have remained high despite oil prices dropping 50 percent.

Since these companies are built to make money at 100 dollar oil, earnings growth have been off the charts!! Like Skechers investors have not valued airline stocks like others sector stock growing at the same rate because of their bad history of not being able to make money. But check out these returns for the past few years of these companies.

Southwest Airlines (LUV)
http://www.1stock1.com/1stock1_244.htm

Delta Airlines (DAL)
http://www.1stock1.com/1stock1_1115.htm

United Continental Holdings
http://www.1stock1.com/1stock1_1950.htm

Alaska Airlines (ALK)
http://www.1stock1.com/1stock1_1382.htm

Like to start the discussion here of whether anyone have taken advantage of these circumstances? Thanks

Gerald

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I am aware the airlines have run up, and they have been a great play on falling oil prices, congrats on your foresight. I know there has been consolidation, and they have gotten much better at efficient use of their planes. I remember flying on planes that were half full, which was great for passengers, but not for airlines. Now, every flight I’ve been on has been packed full. So they have definitely improved their business practices. ( I don’t fly a lot, but I also hear this from everybody I talk to about it, flights are jam packed ).

Oil seems to be stabilizing, but it probably isn’t going to run up in price. So are you putting new money into any airlines ??

I sold my AAl on Friday to buy more Celgene, Skyworks, Skechers, and Twitter but after earnings next week I will decide what portions of my portfolio will go back into the Airlines.

They have run up recently on their earnings which most have reported last week. So if oil goes higher given more driving and more people lulled into buying Suv’s based on gas prices I see oil stabilizing and moving higher. This may cause a pause in Airline stocks short term but they tend to do really well during earning season, especially during the holidays.

When they decide to raise interest rates it’s not a bad strategy to go with low PE stocks with great growth like Swks, Skx, Bofi, and the Airline stocks which has attractive evaluations.

Gerald

Another potential play on airlines could be Air Lease. I wrote about it sometime back.

Anirban.