Time to buy airline stocks?

United has dropped so sharply on oil prices that it now looks attractive.

By TheStreet Staff Feb 24, 2011 1:59PM

Image: Airline (© Blend Images/SuperStock)By Ted Reed, TheStreet

 

Let's just say that oil prices are not going to keep going up forever.

 

Some analysts are beginning to suggest that airline shares, pummeled recently by rising fuel prices, could be attractive because of continuing strong traffic and some success in raising fares, not to mention the potential variability of the fuel-price trend.

 

"Opportunities exist in the group," Dahlman Rose analyst Helane Becker wrote in a report issued Thursday. She noted that in two days of trading -- Tuesday and Wednesday -- United (UAL) fell by 15%, while US Airways (LCC) fell by 13% and Delta (DAL) fell by 4%.

 

In the past week, the average legacy-carrier stock has fallen 13%, while the S&P 500 ($INX) has slipped 2%, said Soleil Securities analyst Jim Higgins.

 

Post continues after video:

"Investors are selling airlines as a reaction to higher oil prices and ignoring the revenue environment, which is fine, as it gives long-term investors an opportunity to buy some of the best-positioned names in the group," Becker said.

Higgins added, "Unknowns abound in the outlook for the Middle East, but a fresh look at airline earnings prospects and related target prices at current jet fuel price levels suggests that downside risk may be less than is generally perceived."

 

Higgins recommended Alaska (ALK), Southwest (LUV) and United.

 

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