Making Money Trading Airline Stocks
The Dynamic Wealth Report
July 7, 2008
Did You Make Money On This Airline Trade?
July marks an important milestone in the financial markets. It’s the
halfway mark on the year. It also serves as an important point to
measure various investment strategies. Every investor should pause and
look at their track record.
Have you been successfully running your investments this year?
There’s a really easy way to measure success. Do you have more money in
your account now then when you started?
It’s a simple analysis and I hope the answer is a resounding “YES!”
We’ve done our part here at The Dynamic Wealth Report. I went back
through our articles from the beginning of the year. We’ve put out a lot
of great content (If I do say so myself). I’d suggest taking a look at
our archive section. You’ll find tons of interesting thoughts and ideas
about the stock market. Many of which might make you money.
Let me give you a perfect example.
In January, we published an article that saved readers millions of
dollars. . . . and could have made you rich! Let’s take a quick step
back to the beginning of the year.
The first week of January everyone watched in amazement as oil prices
broke the $100 a barrel level. I knew it wouldn’t stop there. This
global oil shock was different.
In the 1970s we experienced an oil shock that was driven by OPEC. It
was an artificial spike in oil prices that threw our economy into a tail spin.
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Today’s oil shock is different. It’s being driven by supply and demand
constraints. Namely increasing demand from India, China and other
emerging growth economies. Everyone knew that skyrocketing oil would hit
certain industries hard.
This is what prompted our first industry article of the new year – “$100
Oil Spells Trouble For These Guys”
So what did I highlight?
It was simple really. We knew that the US led the world in oil
consumption, and we also knew that other economies were growing rapidly
and driving up the price of oil. Face it, Americans are oil pigs. On a
per capita basis we consume twice what the Britons, Germans, and French
consume. And we eat up 13 times more the oil than the Chinese.
Indian and China are growing rapidly. Their middle class is growing by
leaps and bounds. And they’re buying automobiles and using consumer
goods like plastics that are made from or consume oil. Clearly we have a
problem.
Demand that far outstrips supply.
As I said in the original article: This demand for oil is not going
away. If anything, it will get worse. All it’ll take is some turmoil in
Venezuela or another oil producing country and you have a recipe for oil
at $200.
So it wasn’t Venezuela it was Nigeria who drove prices higher. But my
thinking was spot on . . . and I still think we could see $200 oil in
the next year.
My quote of the year right from the article:
Some will suffer from high oil prices more than others. Some experts
point to the automobile industry as one that will suffer the most. No
doubt they will be impacted, but I think the airline industry is headed
for much worse.
My logic was simple. Alternative power sources for cars are available,
though not widespread. They can be run on bio-diesel, ethanol, or
battery power. Cars have also been run on solar power, flywheels, and
even fuel cells.
But the airlines are a different story. They can’t use these other
alternative power sources. And only one major airline hedged its fuel
needs, Southwest Airlines (LUV). As the economy slowed, ridership fell,
and the rising cost of fuel resulted in huge losses for the airline
industry.
I warned everyone to exit this mess early.
I told you to get out of your holdings in the airline industry. Then I
took it another step further and suggested buying puts on United (UAL)
and Delta (DAL). Little did I realize how quickly I’d be proven right.
So what has happened since?
When I wrote this article on January 4th, United was trading at $31 and
Delta was trading at just over $13. Look what’s happened to these stocks
since then.
It was bad for Delta Airlines . . .
It was worse for United Airlines . . .
What’s the bottom line?
By following this one suggestion, you’d have saved yourself thousands of
dollars. And if you’d bought just a few put options you’d have made a
small fortune.
• Travel & Tourism (Down 29%)
The entire travel and tourism industry has been hit hard. First it was
the airlines. Now it’s flowing into the hotels and casinos. The rental
car companies like Dollar Thrifty (DTG) and
Avis (CAR) have led the entire industry lower.
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