Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Archive for the ‘market sector’ Category

Southwest Airlines Granddaddy of Discounters

By for Profit Confidential

Since bottoming out in September, 2005, the airline sector has been showing some optimism on the chart as the trend is bullish. The AMEX Airline Index (^XAL) is looking higher, but is clearly facing some resistance at the 55 level. A strong upside break at 55 could see a move towards the 60 level, last encountered in December, 2004. The index is looking bullish as the 20-day moving average broke above the 200-day moving average from below. The Relative Strength is also above neutral and rising.

 The decline in oil prices from over $70 a barrel is a major factor for the rise in the airline sector. The sector is also seeing a continued pickup in travel, albeit there are competitive pricing pressures impacting margins.

 So, what airlines do you invest in? In my view, I continue to like the discount airlines.

 At the top of my list is the granddaddy of all discounters and where every player wants to emulate, Dallas, Texas-based Southwest Airlines Co. (NYSE/LUV)

 Southwest Airlines started with three Boeing 737 aircrafts in June, 1971, serving Dallas, Houston, and San Antonio. Today, Southwest is the dominant discount or low fare airline in the U.S. with 400 Boeing 737 aircrafts. Its routes are focused on the U.S. and are generally short haul and high frequency, but there are long haul routes.

 The carrier focuses mainly on point-to-point routes (direct non- stop city to city) rather than hub-and-spoke service (including indirect flights). This is a significant difference favoring Southwest.

 The airline industry is not in a growth mode, but the discount area has excellent potential. With all of the … Read More

Chinese Computers Coming to a Store Near You

By for Profit Confidential

I’m not sure if you watched any of the Olympics and I’m not sure if you happened to notice which company was a major sponsor in Turin, Italy. Do you remember that Lenovo Group Ltd.? That is the China-based company that acquired the notebook business from IBM (NYSE/IBM) last May.

 Well guess what? Lenovo, already the largest PC maker in China and is now ranked number three in terms of worldwide PC market

 share. Lenovo controls 7.2% of the PC market, trailing Dell Inc. (NASDAQ/DELL) and Hewlett-Packard Co. (NYSE/HPQ), with 17.2% and 15.7%, respectively, according to research conducted by IDC.

 Now, there is a reason why it is a major sponsor at the Turin Olympics. The company is trying to strengthen its brand awareness outside of China. The purchase of IBM’s notebook unit was the first step, but Lenovo clearly has its eyes on significant expansion into markets outside of China. And guess what? Congress won’t like this. Lenovo wants to go against Dell and HP in their backyard.

 Lenovo will introduce a line of low-priced desktops and notebooks under the Lenovo brand. This conjures up images of cheap Chinese furniture, clothes, toys and electronic goods, which have already driven the U.S. trade deficit to a whopping $65.70 billion in December 2005.

 As I discussed in a recent column, from the period from January to December 2005, China was the third largest trading partner with the United States. The U.S.-China export-import difference was a whopping $201.70 billion in net imports. The U.S. exported a mere $41.8 billion of goods and services to China in 2005 while importing $243.5 billion.

 And, … Read More

Why I Like Going to the Dentist

By for Profit Confidential

It’s a funny thing. I actually like going to the dentist. Not because he cleans my teeth thoroughly, but because we talk about stocks all throughout the appointment. Actually, he does most of the talking, for obvious reasons.

In my last appointment, my dentist was very happy. We got talking about the high price of gasoline, and he told me that he had just invested some money in oil and gas stocks. One of the stocks he bought was Shell Canada, of which Royal Dutch Shell is the global parent.

He also told me that he was soon taking his entire family to Walt Disney World in Florida, driving a minivan with a camper attached to the back. He knew that with five people in the van and a camper trailer loaded with all their belongings, he would spend a small fortune on gasoline. Because of this, he decided to invest some money in an integrated energy producer before his trip. He still paid a lot of money for gas, but he felt a whole lot better doing so, knowing that he owned a small piece of the action.

In my view, this was a great move. At the very least, my dentist felt a whole lot better about his vacation costs. Not surprisingly, with the price of oil, natural gas, and gasoline so high these days, the big energy companies are flush with profits.

As I’ve mentioned before in this column, I don’t feel good about the stock market for the remainder of this decade. It’s a gut feeling, and I may be wrong… But, there isn’t much we … Read More

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