Entering text into the input field will update the search result below

Re-Evaluating My Bearish Southwest Airlines Sentiment

Mar. 06, 2020 12:00 AM ETSouthwest Airlines Co. (LUV)22 Comments


  • In April of 2018, I wrote an article questioning how far Southwest Airlines stock could fall during a bear market.
  • In that article, I warned that Southwest could fall 40-75% off its peak price, and I suggested Berkshire Hathaway was a better alternative at the time.
  • That trade has been very successful. In this article, I re-evaluate Southwest stock in light of the coronavirus, now that the stock is over -30% off its highs.
  • I do much more than just articles at The Cyclical Investor’s Club: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

southwest airlines plane

Source: Pixabay


Back on April 4th, 2018, in my article "How Far Could Southwest Airlines Fall?" I warned investors about the potential downside of investing in Southwest Airlines (NYSE:LUV). It was one of only two bearish articles published about Southwest in the past three years amid dozens of bullish articles from other authors. In that article, I shared the historical price cyclicality of Southwest's stock in this table:

Some of the key factors current LUV shareholders might want to consider are the speed at which the stock price could fall, how deep the plunge could be, and how long they might expect the stock to stay below the price at which it is today. Over the past 45 years, LUV has had nine sell-offs of 35% or more as depicted in the table below:

~Year ~Time until bottom ~Duration ~Depth
1973 4 months 6 months 50%
1974 6 months 18 months 60%
1978 4 months 8 months 37%
1981 4 months 15 months 49%
1984 6 months 18 months 46%
1985 2.5 years 6 years 59%
1994 1 year 4 years 60%
1999 6 months 18 months 38%
2001 8 years 14 years 78%

Using this information, along with the fact that LUV's price had risen considerably going into 2018 and I thought that we were late in the economic cycle, I suggested that LUV shareholders could expect a significant decline in the stock price even if LUV continued to grow for three years more (through 2021) before a decline occurred.

Since there doesn't seem too much of a discernable historical pattern with regard to how far LUV might fall in a downturn, I'll provide a price range based on a 40-75% drawdown from its projected peak price. That range is $28.69 to $68.84. It's important to keep in mind that

ChartData by YCharts

ChartData by YCharts

If you have found my strategies interesting, useful, or profitable, consider supporting my continued research by joining the Cyclical Investor's Club. It's only $29/month, and it's where I share my latest research and exclusive small-and-midcap ideas. Two-week trials are free.

This article was written by

Cory Cramer profile picture
One-of-kind research using historical cycles to identify tops and bottoms

My analysis focuses on the cyclical nature of individual companies and of markets in general. I've developed a unique approach to estimating the fair value of cyclical stocks, and that approach allows me to more accurately buy near the bottom of the cycle.

My academic background is in political science and I hold a Bachelor's Degree and a Master's Degree in political theory from Iowa State University. I was awarded a Graduate Research Excellence Award in 2015 for my research on conservatism.

Analyst’s Disclosure: I am/we are long BRK.B. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.