03/03/00: ?Market Monitor?-Julius Maldutis, Managing Director, CIBC World Markets
PAUL KANGAS: My guest market monitor this week is Julius Maldutis, managing director at CIBC World Markets. And welcome back, Julius.
JULIUS MALDUTIS, MANAGING DIRECTOR, CIBC WORLD MARKETS: Thank you very much. Good to be back, Paul.
KANGAS: Do you think today?s bullish stampede on Wall Street was justified in light of the February employment report or do you think it was a bit overdone?
MALDUTIS: Well, I think it was justified because I think it clearly indicates that the economy is softening and as I will maintain later on, I have some other evidence to indicate that.
KANGAS: Give us a thumbnail sketch, if you would, Julius, of how your firm views the stock market with all its divergences and volatility.
MALDUTIS: Mr. Kamars, our equity strategist and I discussed specifically that issue and there are three central points. One, we?re probably going to see a round of global interest rate increases during this month. Second, if the economy does not cool down and then we go through another round of rate increases, let?s say in the early summer, I think that?s going to put the stock market in considerable jeopardy. Third, and finally, I think the relationship between interest rates and the economy is separating and diverging and that the course of the economy is going to be determined more by energy prices.
KANGAS: OK.
MALDUTIS: In that connection, there?s something interesting. We?ve had now three months of relatively weak domestic airline industry traffic. Historically, that tends to be a leading indicator. Either the consumer is reflating his personal balance sheet or he is turning more and more negative.
KANGAS: OK. Well, now your specialty has been mentioned, the airline industry. Give us a more complete update on where it is and where it?s headed.
MALDUTIS: Well, as you know, last year was not a very good year because in the second half energy prices kicked up and as you know, energy is the second largest cost item.
KANGAS: About 20 percent, right?
MALDUTIS: Fifteen to 20 percent.
KANGAS: OK.
MALDUTIS: Short-term I?ve been very cautious on airline stocks because of energy and because of the fact that the traffic growth has been sub par. Long-term I remain bullish on the industry.
KANGAS: The last time you were with us was last September 24th and the Dow Transport Index was at about 2,880, now it?s around 2,400 or roughly there, and you were not at all bullish on the airlines then. You didn?t like American or Delta (DAL) or United because of the labor problems they were having, but you did like Alaska Air (ALK), around 38, it?s down to around 28, 29. Do you still like Alaska Air?
MALDUTIS: I still like Alaska. Obviously their recent tragedy had an impact and they had a few labor problems. But I think long-term it?s still a very well managed company.
KANGAS: And your favorite, of course, was Southwest (LUV), 15. It?s now almost 20 and it?s been as high as 23. You still like that one?
MALDUTIS: I like Southwest Airlines, and there is a Southwest Airlines clone in Canada.
KANGAS: Westjet (WJA.TO).
MALDUTIS: Westjet.
KANGAS: You recommended it on our program at 14, it?s now in the 20s.
MALDUTIS: It?s a great airline. It?s a carbon copy of Southwest Airlines. The third airline that I like a great deal is in the back of your woods, Paul. It?s called AirTran (AAIR), the former ValuJet.
KANGAS: Ohm, yes.
MALDUTIS: It?s a great turnaround story. They?ve got great management, new airplanes and they?re moving to Atlanta.
KANGAS: Well, the big carriers, the AMRs, the Deltas, the Uniteds were sharply higher today. You don?t like any of those even at this juncture?
MALDUTIS: No, I?ve got all virtually all the airlines as a ?buy.? The airlines I was very cautious with a ?hold? recommendation were obviously U.S. Air, that has the potential of having a strike at the end of this month, TWA because of its chronic problems, and also Delta Airlines, which had very serious labor problems, but today the management scored a significant victory. And I think this is going to be quite positive for the stock in the near term.
KANGAS: So you?re very positive then on Delta?
MALDUTIS: Well, I?ve still got a ?hold? on it and in view of the recent announcement that Leo Mullin, the Chairman and the management of Delta succeeded in staving off unionization by the TWU, I think is a significant positive near term.
KANGAS: So you?re a lot more positive on the airline group now than you were last September. Is that basically what you?re saying?
MALDUTIS: Absolutely. I think what we have discounted is a very bad first quarter.
KANGAS: OK.
MALDUTIS: I think if you think that oil prices are going to come down, then airline stocks are a buy.
KANGAS: All right, Julius, thanks very much. We appreciate your being with us.
MALDUTIS: Thank you.
KANGAS: My guest Julius Maldutis, Managing Director the CIBC World Markets. |
