Buy Airlines or FedEx if you Think Oil Prices Have Peaked

Oil prices fell today on inventory news that should have been very bullish. Often tops and bottoms occur when stock price action diverges with the news, like we saw today.

This article explains some methods that should profit from falling oil prices without the risk of shorting futures or even the need to open a futures account.

First, do you think Oil prices have peaked? Do you think gasoline prices peaked near Memorial Day, the traditional start of the summer driving season? Gasoline prices here in California often peak on Memorial Day.

If you answered yes, then one way to trade this belief is to buy airline stocks. The chart below shows airline stocks have fallen faster than oil prices have gone up.

The graph shows XAL (the AMEX airline index,) American Airlines (AMR), Southwest Airlines (LUV) and United (UAUA) have all fallen far more than oil prices have doubled since December 2006. To remove the specific stock risk of an airline going under, I'd buy the exchange traded fund, XAL.

Alternative Idea: Short First Solar (FSLR Key Statistics) if tight stops take you out 2% below my dashed blue support line.

If someone put a gun to my head and asked me to recommend a stock to short to take advantage of falling oil prices, it would be FLSR with an 8% stop loss and a target to cover of about $125 where it would have a PEG of 1.0 if you believe a company can grow at 45% a year for five years. A company with a $20B market cap will have a hard time growing at 45% a year without a ton of competition attacking their margins. Also, the current price already reflects near perfect execution of a very bright future. I'd look for a 50% gain (50% price decline after breaking support) for an 8% risk.

If you own solar stocks, then you may also want to put in very tight stops and consider going short if support is taken out. Some of the solar stocks are trading years ahead of fundamentals much like NASDAQ stocks were in March 2000. First Solar may have made a double top or it could find support at the 200 day moving average, but at 34 times sales, a PE of 102 and a PEG of 2.0 on a 45% growth rate, it is not cheap and would not be cheap even at half its current price of $256.

Shorting FSLR with an 8% stop loss could be safer than owning airlines. All are risky trades that nobody should attempt without using stop losses to protect you should you be wrong on the direction of oil prices.

Go long FedEx for a safer investment: Even if oil prices go down, airlines have never been a very profitable business for shareholders. You may want to own a stock like FedEx (FDX) instead.

It has been much easier to make profits transporting packages than people who may put bombs in their shoes or box cutters in their carry-on luggage. FedEx should also benefit from high oil prices in the long term as more people will shop on the internet to save driving. Even if oil prices remain high, FedEx will eventually raise prices and return to growing profits. Airlines wish they could remember what it is like to be profitable.

Not a recommendation!

I am not making a recommendation here to short FSLR or to go long airlines. This is a "how to" article for those who are looking for ideas. I believe there are "safer" ways to make money. I prefer taking my high risk with technology stocks rather than airlines that have never been good investments. My speciffic recommendations are in "Kirk Lindstrom's Investment Newsletter" where I have profited on rising oil prices with other investments like VLNC (see "Valence Technology: A Green Stock with Potential") that I've taken profits on and have stops in to protect gains already similar to what I recommended for FSLR investors who have great gains now.

Disclaimer: I am long FDX with very large gains from buying long ago when I correctly guessed it would benefit from internet commerce. FDX has corrected significantly on the economic slowdown combined with jet fuel going up faster than they can increase fuel surcharges. If oil falls in price and the economy starts to grow again, FDX would see a 33% gain just getting back to the highs it hit many times in 2006 and 2007.

To find out how I've profited greatly from these difficult market conditions, subscribe to "Kirk Lindstrom's Investment Newsletter" today!

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Don't delay!

Sunpower, First Solar and Apple Computer: Top Picks from Hilary Kramer

Thursday night on NBR, Hilary Kramer, Market Strategist & Author of "Ahead of the Curve: Nine Simple Ways to Create Wealth by Spotting Stock Trends" said she thought the bottom was in (DJIA closed at 12,270.17) and she saw value in the tech group where she recommended Sunpower (SPWR=74.25), First Solar (FSLR=164.74) and Apple Computer (AAPL=139.07).

KRAMER: Yes, Paul. I believe we have seen the bottom and we are going to now see a bull come back into Wall Street. We have formed a bottom and the reason we know that is that we finally had real buyers come in today. But we know it even more so because of what I saw this morning and yesterday, which is real fear. Fear took over and it over powered greed. Greed for so long was fueling the market, including as it was going down people buying into it.

KANGAS: Huh-uh.

KRAMER: But once that pessimism, a rational pessimism took over and the last of us capitulated because that's what Wall Street waits for. They wait for the very very last person who's holding onto their stock to give up and to sell and that's when the Street turns around and surprises you.

KANGAS: OK so a bottom we have seen. We might test it a couple of times, wouldn't you agree?

KRAMER: Absolutely. We may be testing and we'll be testing certain sectors.

To Paul Kangas's question "Where do you see value among the tech group?"

KRAMER: That's a great question, Paul. What I have been looking at are the solar technology companies. In particular there's a company called Sunpower. The ticker symbol is SPWR and it is off 50 percent from its high which was only a few weeks ago. Now Sunpower is reporting before the bell tomorrow and we could see Sunpower have some great guidance. If they say that there's a lot of demand out there for their solar modules and if that's the case, the whole solar sector may rise.

KANGAS: What else shines in your mind?

KRAMER: OK another solar stock, a different one called First Solar (FSLR) and it's a different technology, thin film technology, very efficient form of solar. And First Solar is also off 45 percent since December. It's unbelievable what has happened to these stocks because of momentum buyers became momentum sellers and shorters. So if Sunpower goes up, we will see First Solar go up.

KANGAS: Very briefly one more. We have less than a minute.

KRAMER: I would like to talk about Apple (AAPL). This is very important, because as we know, Apple was $202 just recently and it closed today at $139 and it tested $126. I may go back into Apple. But what happened there is Steve Jobs is very conservative in giving guidance. But the key is, they are going to make inroads into the PCs because they can convert iPod users into desk top users and lap top users.

KANGAS: OK. Hilary, do you own any of the stocks mentioned?

KRAMER: Yes, I own First Solar. And Sunpower I do intend to buy tomorrow morning if the earnings come out strong.

Summary & quotes from Yahoo! Finance

Point and Figure Targets for

• FSLR: Bearish Price Objective of $164 met.
• SPWR: Bearish Price Objective of $92 met and it continues to plunge lower to next support level indicated on my graph above.
• AAPL: Bearish Price Objective of $142 met.

Click charts for more info:





Disclaimer: I have no position in any of these stocks and have no plans to buy them at these valuations. (PE for AAPL=29, SPWR=370 & FSLR=125) I have been buying different tech stocks with PEs under 15.

Discuss this article at "Value and Growth Investing" in our facebook group called "Investing for the long term."