The Iconoclast Investor

Admittedly, the list of good-looking stocks is extremely small these days; that’s how it is at market bottoms.  But the few stocks that do reveal strong investor support are worth following closely–particularly if they have great growth stories–because they’re the stocks most likely to lead the next market advance.

One sector we’re keeping on eye on is the airlines.  It’s common knowledge that high fuel prices killed some of the weaker players in the industry.  But now that fuel prices are falling, the airlines are going to report surprisingly good earnings … and the performance of their stocks reflect it.  Two airlines earned a spot in Cabot Top Ten Report last week.  One of them was Continental (CAL), the fifth-largest airline in the world, and here’s what editor Michael Cintolo wrote.

“Like all airlines, the company has been battered by high fuel costs … Hurricane Ike contributed to another $50 million of lost revenue.  So why is the stock so strong? Because the top in fuel prices is in … oil prices sit about 50% off their July peak. As a business, Continental has remained in relatively good shape–revenues rose thanks to flat passenger totals, but higher fares. Thanks to the huge drop in energy prices, analysts believe this company can earn more than $3 per share next year, which shows you how much earnings power the big firms in the airline sector have when the environment is bullish.”

On the technical side, we wrote, “What impresses us most is the five straight weeks of high-volume advances seen after that mid-July low, versus the sharp, four-week decline with tame volume during the market’s crash.”

Today CAL continues to act very well.  It’s beaten the market easily over the past three months, and is likely to continue to do so in the future.  And cheap?  The stock is currently selling at just four times next year’s expected earnings.