Airlines Set to Rally on Oil Pullback

The stock prices of airlines have taken quite a hit in the last year as speculators sent the price of oil up to record levels. In the past few days, oil has pulled back from its record highs and the airlines have started to rally. I expect oil to continue to sell off and I think buying airline stocks is a good short term play. There is also talk of consolidation in the airline industry so this too should bode well for airline stocks.

I think oil will continue to sell off for a couple of reasons. First, the Fed is expected to signal that it is going to stop lowering interest rates for a while. This will help the dollar strengthen and it takes away the major reason speculators have been bidding up oil (they have been buying oil as a hedge against the falling dollar). Second, the high price of oil and the sluggish economy is reducing demand for oil. I think future supply reports will show this.

I believe the entire airline industry is going to rally short term so you have a lot of companies to choose from. I am going to give a buy recommendation of American Airlines (AMR) with a price target of ten dollars in the next month.

Disclosure: none

Comments

[firboy4:]

I would buy AAI, but then I already did. It's worth looking at, due to the fact that it dropped waayyyy too much and is surely going to come back at least part way. It's at 3.40 and I would think that a price of 4.75 is quite obtainable within a short time. I just wish it were me that were buying it now, rather than when I did. I'm sure AMR is a good buy too.

2008 Apr 30 11:00 AM

[Ames Tiedeman:]

You forgot the best airline in the nation: Jet Blue

2008 Apr 30 11:46 AM

[jettek2002:]

Jet WHO?? Oh!! you mean Continental Airlines. THE best airline in the nation.


On Apr 30 11:46 AM Ames Tiedeman wrote:

> You forgot the best airline in the nation: Jet Blue

2008 Apr 30 10:16 PM

[LJ:]

This doesn't seem like a good idea for long term. Just like many financial companies, many American airlines were short oil. Southwest is probably the only exception. Oil price may drop for technical reasons, but the problem is that the global oil production probably has already reached the Hubbert peak, where further increase in oil production will meet with disproportionally higher energy costs.

2008 May 01 12:30 PM