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Image courtesy contri: http://www.flickr.com/photos/contri/While it may be old hat in investment circles to advocate the categorical avoidance of airline stocks, this overly-reductive adage overlooks the very real benefits of short-term trades in airline stocks.

One such example is the recent performance of China Southern Airlines (NYSE:ZNH).

While global markets have tumbled over the past month, China Southern has served as somewhat of a safe harbor; the stock has outperformed the S&P 500 over the past month, down only 4% compared to the benchmark’s 8% drop.

Juxtaposed with other emerging market equities, China Southern’s performance is even more impressive: -4% versus -12.9% in the iShares MSCI Emerging Market Index (NYSEARCA:EEM).

The reason why the stock has held up over the past month are manifold. First, the stock had been beaten up badly all year because of rising oil prices. After a ten-month downtrend, the stock may technically be finding a bottom.

China Southern Airlines is particularly sensitive to the price of oil. The Chinese government severely limits the hedging flexibility of its state-run carriers after losing billions on hedges at the beginning of the financial crisis. While such policy is burdensome in times of sky-high oil prices, when the price of oil falls substantially China Southern stands to benefit. With a prolonged slowdown on the horizon, China Southern’s bottom line could actually improve in spite of the general macroeconomic turmoil.

The prospect of a Chinese slowdown is outweighed by the rapid growth of the Chinese domestic aviation sector. The Centre for Asia-Pacific Aviation sees China’s domestic passenger growth returning to double digits this year. Domestic passenger numbers should top 300 million, and Beijing should surpass Atlanta as the world’s largest airport in terms of annualized passenger traffic. Continued growth at one of China Southern’s most important hubs, Beijing Capital Airport, will benefit the carrier. The airline continues to expand, continually increasing the company’s fleet size and adding 34 new routes this winter.

Evaluating certain metrics in the stock is somewhat difficult; ZNH’s current P/E is a paltry 6.7, but its forward P/E is a large 53.2. However, the forward numbers evaluated the stock of China Southern Airlines while factoring in a much higher jetfuel price. As the price of oil comes down, analysts may issue upward guidance revisions. In other words, the stock is probably cheaper than its forward P/E ostensibly suggests.

If the global economy is able to avoid real economic calamity (a euro collapse or an outright Chinese housing crisis), China Southern Airlines could be an attractive place to hide out as markets fall globally.

However if any of the aforementioned crises or a black swan event occurred, investors would need to reconsider. While China Southern Airlines may look like an attractive stock in which to purchase speculative calls, it should be noted that volume is very light in ZNH options, spreads are very wide, and exiting a position could be difficult. As such, buying the stock rather than options is the recommended play for ZNH.

Source: China Southern Airlines Maintains Altitude