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To profit in trading airline stocks, and they make the perfect trading vehicle, you have to buy ugly and sell pretty. It also takes a certain psychology to buy against the crowd and against intuition. The industry is cyclical, seasonal and quite predictable in its earnings and market valuation swings.

As most know, certain UAL employees, and more than a few shorts, have been attempting to drive the stock down. They've been quite successful and the company has been a wonderful short candidate since the summer of 2000 (pilot slowdown). My hat is off to anyone who can make money on airline stocks - whether they bet long or short.

Disinformation, political hack jobs, propaganda and pure foolishness is getting in the way of rational thinking about when to sell and when to buy. In my opinion, the company will recover because it is in the best interest of the employee-owners for it to recover. If you believe the mechanics are foolish enough to strike the company -this will mean bankruptcy - the company is a short candidate because the equity will be wiped out. However, if you believe that rationality will prevail, the economy improves, and United comes up with a recovery plan - the stock is a great buy. The risk is actually much lower than people believe because all the bad news is built into the stock.

Extremely low expectations and the threat of a ruinous strike have pushed the market value to pennies on the (revenue and asset) dollar. The company is cutting capex (aircraft expenditures) from $2.5 billion to zero in 2004, which means the company will have a positive free-cash flow by the 3d quarter. This is not the same thing as positive accouting earnings - that would take some real cuts in costs.

It will take real labor cost reductions to turn the company around, no doubt about that. I'm optimistic that the employees and the many hotheads will realize that it is in their collective best interest to provide the relief necessary to be competitive. Throw in an improving economic environment and industry fundamentals and you have the makings of a good return on UAL's badly beaten down stock. The shorts have been in the driving seat for quite awhile, but now is the time to go long.

Personally, I've been loading up on the stock for the last several weeks. A good sell point would be in the mid-20s. This target price has the support of 4 of the airline analysts (trading buy) and there will be an announcement of labor cost reductions before the end of the 2d quarter. The current stock price does not factor in a "recovery plan" and is currently 1/2 it's intrensic value IF costs are reduced as forecast.

How high the stock goes depends on how rational (in labor relief) the company's employees are about any "recovery plan".

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