Dr Marc Faber advises to buy stocks with hopeless outlook and horrible fundamentals.One does not have to look far to see a sector which fits the criteria -airlines.
Now what is the most important thing to look for in selecting an airline stock?Earnings growth?nope revenue per passenger mile no.Right now all those facts and figures does not mean anything.Right now they are fighting to stay afloat-the most important thing is what is the risk of the airline going bankrupt?
I think ZNH is the airline with the least risk of going bankrupt as the government owns 50% stake and it controls the market and the competition.In these times of rising fuel prices,airlines would need all the help they can get and ZNH is well positioned that way. http://uk.reuters.com/article/rbssIndustryMaterialsUtilitiesN...
The report is not encouraging at all and the CEO does not expect any recovery before 2009.Key points-the Olympics and Taiwan is not going to help.The yuan appreciation will contribute to the bottomline by making fuel imports cheaper. But my argument is that much of it has already been factored in-everybody knows that the airlines are in trouble.Yesterday Boeing got hit by a downgrade from order cancellations.That means less airplanes flying around which is good in the long run.Fuel prices are not going to come down any time soon so the only way out is capacity reduction and increased efficiency.We would see a lot of that in the coming years.So we are going to see higher fares going forward.That would mean only rich folks can fly in the coming years.Where are all the rich people?
http://www.azcentral.com/arizonarepublic/business/articles/06...
"the ranks of the wealthy are growing fastest in India,China and Brazil"
The Chinese market would be big enough to keep this company afloat.In this connected world people would still need to fly.
A real threat to business travel would be videoconferencing and other tech innovations.Who knows?It is something to watch out.Every commodity bull market will end.That is something that should not be lost sight of.
http://www.reuters.com/article/reutersEdge/idUSN0227020620080...
$14.3 (06/26/08)
