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How To Play Falling Oil Prices

|Includes:SkyWest, Inc. (SKYW)

As we wave goodbye to a glorious 2013 for the stock market and welcome the New Year, many investors are gathering their New Year investment goals and trying to determine this year's top sectors and stocks. Aside from the stock market, we saw oil prices gain only 7 percent on the year, while the S&P returned 30 percent. Since the end of summer 2013, oil prices have gone into a strong downtrend and after a recent retest of resistance, some believe the slide in oil should continue. This can be thanked in equal parts to North America's new found oil reserves, Iranian sanctions poised to soften as peace talks move forward, and U.S. and foreign forces are poised to pull out of Afghanistan by year's end. This is great news for consumers and a variety of companies in the travel industry.

One such stock that could see an uptick if oil prices do continue to fall is SkyWest, Inc. (NASDAQ:SKYW). SkyWest is a regional airline that offers flights in North America and to the Caribbean. SkyWest also flies as "Delta Connection, United Express, US Airways Express, American Eagle, and Alaska under code-share arrangements" (finviz). SkyWest has 760 planes in its fleet as of early 2013.

Turning to the fundamentals, the regional airline has a market cap of $769.4 million and is currently rated as a "hold" from analysts. Price to earnings is at 12.16 and forward price to earnings stands at 12.19. Price earnings growth is a little overvalued at 1.84, but trades at a steep discount when looking at a price to sales at .23 and price to book of .54. Price to free cash flow is also quite good at 5.25. Total debt to equity is at 1.07, but SkyWest has ample cash, as seen through cash per share of 13.65. This gives the airline a stable current ratio of 2.4 and the ability to afford an annual dividend of 1.08 percent. Earnings are expected to rise 290.4 percent in 2013, 3.31 percent this year, and 6.6 percent over the next five years. Gross margin is good at 63.9 percent, but operating margins and profit margins need work at 5 percent and 2 percent respectively.

It is important to note that institutions and money managers have a large stake in the company, 86.7 percent of the float to be precise. Insiders own a measly 1.6 percent of the company's shares. Last year, shares of the airline saw a nice 20.37 percent jump and could likely build on those gains in 2014.

Please be advised that airlines are volatile and as oil moves sharply, so can airline stocks. SkyWest has a beta of 1.54, for instance, which means the stock is more volatile than the overall market. Investors must do their own homework and research to determine if this speculative 2014 play is right for their portfolio.

Stocks: SKYW