A Monster Rally In Airline Stocks

By: DailyWealth

Since July, the price of crude oil is down more than 30%. This decline has killed oil stocks... but provided a big boost to a "bad to less bad" trade we profiled years ago.

Back in September 2011, we wrote a bullish note on airline stocks. Airlines sport razor-thin profit margins, they're subjected to wild swings in fuel costs, and they require lots of capital expenditures to keep the businesses running. This makes them horrible long-term investments. But from a trading viewpoint, it's worth noting that airlines go through big "boom and bust" cycles. These cycles can be traded for big profits.

In our write-up, we noted how airlines had just experienced a big bust. Many airline names, like Southwest Airlines, had lost 30%-40% of their value in just a few months. Sentiment toward the sector was awful. This, we speculated, was setting up a "bad to less bad" rally.

Just after our note, airlines stocks entered a huge, multiyear rally. Since fuel prices are a big cost for airlines, the decline in crude oil has boosted this rally. For example, major airline Southwest Airlines is up 48% since July... and up a stupendous 372% since our note. It's a heck of a bad to less bad rally.

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