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One of my golden rules is never, never, never, never invest in an airline stock. Airlines stocks are nothing but trouble. They’ll lie to you. They’ll cheat. They’ll steal. They’ll say they love you, but they stay out late drinking. Airline stocks can never be trusted. Even Warren Buffett got burnt in an airline investment. Just don’t do it.

So...have I told you about our airline stock?

Yes, I admit it. Frontier Airlines (FRNT) is on our Buy List. I wish I could say that I have some highly technical reason for liking Frontier. I don't. I simply think the stock is undervalued.

As long as your portfolio is well-balanced, I think it’s acceptable to add a reasonably risky stock. But it should be a small portion of your portfolio. Also, for the first time since Kitty Hawk, things are looking up for the airline sector:

After five years of steep losses, the U.S. airline industry appears to be on the verge of a recovery, as fuel prices come off their peaks, labor costs decline and excess capacity finally begins to shrink.

Strong demand for travel also is adding to the industry's tailwind. The Air Transport Association says passenger traffic this year looks likely to exceed 2004's record, which surpassed the previous peak set in 2000. During the busy Thanksgiving travel period, from Nov. 19 through Nov. 29, the trade group expects the nation's airlines to carry 21.7 million passengers, topping the year-earlier high of 21.6 million.

Several large airline operators, including Continental Airlines, Alaska Air Group Inc. and the newly merged US Airways Group Inc., are expected to be in the black for all of next year, compared with just three carriers this year, according to mean estimates of analysts surveyed by Thomson Financial.

Among the discounters, which now control pricing on major routes, perennially profitable Southwest Airlines forecasts a 15% jump in profits for 2006. JetBlue Airways, which is projecting an unusual loss for 2005, is expected to return to profit in 2006, according to analysts. Meanwhile, seven airline stocks are trading near their 52-week highs.

Posted by edelfenbein at November 27, 2005 2:30 PM