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American Airlines (AMR)
Rating: 1.00 (1 votes)
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I would most definitely NOT be a buyer of AMR, or any other airline stock, at this time. In fact, the majority of my Marketocracy short fund is made up of short positions on airline stocks. Whether oil goes to $150 as MS predicted or not, AMR in particular is in big trouble. Oil is certainly a key consideration industry-wide, since airlines' shaky business models cetainly weren't built for triple-digit oil, but AMRs got another, perhaps more devastating problem: labor. AMRs labor contracts were last negotiated in 2003, when the company was on the verge of bankruptcy. The pilots union, the flight attendants union, the ground workers union.... all accepted contracts under those macro conditions. Now, that the company's survived, they (the unions) are not going to be as conciliatory. The ground workers' union has already rejected at least one company proposal. The company is currently in thus-far unproductive talks with the pilots' union, and the flight attendants union will begin negotiations later this year. I live in the Dallas area, and personally know two flight attendants. Both have told me that they expect their upcoming negotiations to be bitter and contentious, and both said strikes were definitely a possibility. Plus.... charging people 15 bucks to take their luggage on vacation?!? Come on.... that's VERY bad publicity. Publicly drop that surcharge, enjoy the media kudos, and then quietly raise your fares a commensurate amount. | ||
Lufkin Industries (LUFK): Still pumping?
Rating: not yet rated
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LUFK was a screaming buy when I first purchased it on Marketocracy: 15APR03 at a price of $19.32. It's been in my energy sector fund ever since, at varying levels of weighting. I've owned it off and on IRL, too. It was during another of those explosive periods of price appreciation that I wrote it up for Marketocracy as a potential Stock Alert pick. Sadly, by the time that alert was published in late 2005, the stock went rangebound at around $60, where it stayed until this most recent run-up. LUFK is a difficult stock to decide 'pick' or 'pan'. I do think they're in a great potential business, especially given the tremendous resurgence in drilling in West Texas' Permian Basin area. My dad delivers mail to a USPS rural route across a vast area around Odessa, Texas, and has told me every time we talk that he's never seen this level of drilling activity even back in the early 80s. Each of those drilled oil wells will need a pumpjack on the surface, and that's one of the main products in Lufkin's lineup. They also manufacture reduction gears, which basically take a rapidly spinning shaft and output a slower speed/higher torque shaft. Another product line includes various trailers. I once saw a very happy sight for a Lufkin shareholder: a Lufkin trailer heading west on I-20 (towards the Permian Basin area) with a Lufkin pumpjack on the bed! That's all well and good, though... but investing is not about what's past, it's about what's ahead. Analysts estimates call for LUFK to earn $6.00/share next year, and forecast an earnings growth rate of 10.25% over the next five years. That computes to a forward PEG of about 1.25 to 1.3 with a price-per-share in the $78-80 range. That's too rich for me. I think there are better opportunities in the oilfield services arena. If you see LUFK pull back to $55-60, and you're patient, then maybe it'd be worth a small portion of your energy sector allocation... but at nearly $80, it's got all the good priced in.
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