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Strategies & Market Trends : Range Bound & Undervalued Quality Stocks -- Ignore unavailable to you. Want to Upgrade?

To: tencho who wrote (901)	2/4/2000 12:13:00 AM
From: Esway	Read Replies (1) \| Respond to of 5499

04-Feb-00 00:03 ET [BRIEFING.COM - Patrick J. O'Hare] It was an ugly fourth quarter for the airline stocks, and for that matter, it was an all-around ugly year in 1999. Plagued by rising fuel prices, higher labor costs, Y2K travel concerns, and modest pricing pressures, the industry fell out of favor in the investment community. Yes, there were a few shining moments for some of these stocks, but by and large, traders used signs of strength as a selling opportunity. Not helping matters either was the fact that the underperformance of these stocks subjected them to tax-related selling; hence many of the components were at or near their lows for the year when champagne corks were popping, signalling the dawn of a new century. At the date of our last industry report (10/20), it was our contention that the airline stocks would show improvement in late CY99, early CY00, as traders became more comfortable that the worst of the news had been factored in and as oil prices began to drift lower. Simply put, oil prices didn't drift lower. In fact, they continued to rise which weighed further on investor sentiment along with the lowered earnings guidance from industry leader, UAL Corp. Looking ahead, we think the airlines, at least, will perform in line with the market given their already depressed valuations. In addition, the sector looks poised for some oil price relief altogether as we suspect OPEC will boost production to keep from losing market share to non-OPEC members, and to provide price stability while alleviating increasing concerns over inventory reductions as global demand increases. Accordingly, higher fuel prices should become less of a focal point in due time, and given that the airline stocks are very sensitive to the movement of oil prices, relief on that front should provide a much needed boost to investor psychology. Of course, OPEC has often been an unpredictable body, and should it continue its current ways when it meets next month, higher fuel prices will remain a dark cloud hanging over the airlines and their stocks. Until OPEC provides its guidance then, we are expecting the airline stocks to perform in line with the market, but do recognize some decent upside potential exists should oil prices drift lower as softer comparison periods (starting mid-CY00), high load factors, reduced costs through technological changes (e-ticketing for example), global consolidation and discounted valuations also leave the sector well positioned to ride even modest improvements in industry conditions into significant intermediate- to long-term gains.