FLYING HIGH - Airlines (LCC), PALM, Not: AAPL, JPM

Late this afternoon an emergency landing by a US Airways (LCC) flight from NY (LGA) to NC (CLT) in the Hudson River was executed to perfection upon engine failure (flock of birds). As accidents go, the circumstances could not have been more ideal as the pilot adroitly landed the plane intact and a slew of commuter ferries readying for the PM rush were immediately available to assist in the rescue. Apparently everybody got off the plane safely. The ultimate cost to the company not covered by insurance should be de minimus. The positive PR boost ($1-3 MMs?), on the other hand, probably more than offset said cash cost. What a great story to bump Mad-off from the news (re)cycle. My hat's off to responders.

Source: CNN.com, Inset: Pilot Chelsey B. "Sully" Sullenberger

The immediate investment implication for the airline sector at-large, and LCC in particular, would seem to be very positive as investors have an incentive to check-in on the industry. Many are in the Warren Buffett camp of forsaking the sector altogether, but I consider George Soros a better role model as he embraces the roles of investor, trader, or speculator as context dictates; he was an original investor in JetBlue. Therefore, it seems timely to reiterate my strong intermediate-term support for buying the airlines (as long as the overall market isn’t tanking).

The story is straightforward for the “bad” airlines (e.g. not LUV). The companies coming out of bankruptcy over the last few years face what appears to be a minimal threat of labor strife and have been manic about controlling costs ex-fuel; capital restructuring (less debt) opens the door for consolidation; and the gigantic headwind of last year’s jet fuel costs are going to drop off the cliff in 2H09 as hedges expire. Further, the airlines have pricing power right now as the industry can cut suppoly at a rate on par with the fall in demand. Passengers may sometimes find it more economical to ship luggage ahead via UPS, but people still have to put up with the a la carte pricing schemes as seat capacity is limited. Also, first/business-class is being filled by full fare customers (except morons like Stephon Marbury) that were previously flying chartered jets, which crowds out the “upgrade” crowd; massive airline mile deflation also support margins. If only OPEC could be so successful.

If you care to geek out on the analysis further consider a visit to this analyst/ex-pilot’s site.

PALM. Being long a high-beta, heavily shorted name in the midst of a terrible market was no fun on WED especially since the stock closed below the post-CES pop from last FRI. Not good, but being a slave to technical analysis on a fundamental idea isn’t my style and I didn’t panic; it’s the wrong move when a company reaches an inflection point. Today’s +35% move was a sweet confidence boost, but taking profits now would be too early. Data from ShortSqueeze.com indicates that 38% of the float is short (12.7 days relative to average daily volume), and you can bet more was added amidst the high volume yesterday. The whipsaw bounce today accelerated into the close so I can virtually guarantee that the stock gaps up tomorrow. At $8.50/sh I would sell at least 1/2 the position. Place the limit order now, because PALM may hit that tomorrow.

AAPL. Acted well despite my screed yesterday, but this company needs to join the world of dividend-players. Growth stocks with decelerating growth rates are “value traps.” This goes for GOOG as well, who just axed 100 people from HR.

JPM. Opening above yesterday’s close was a “win” on my preview prediction, but I would have sold all trading longs at the open today. C is rumored to be promoting the bad/good bank idea. The last prominent company to do so was Lehman Brothers; I’m just saying. Financials remain firmly in day-trading territory at least until Treasury/FED hammers out a more definitive game plan. Bernanke suggested revisiting TARP on Tuesday, which is fine with me, but let’s see what happens in Congress.

INTC. After pre-announcing results twice this Q, they managed to "meet" consensus EPS of $0.04. If things are that bad for INTC think just how much worse the outlooks are for NVDA & AMD.

Disclosures: Long PALM.

JOBS WAS OUT OF TOUCH

After months of speculation surrounding the true condition of his health, Apple CEO Steve Jobs is taking a leave of absence through the end of June (at least) after suggesting everything was under control a few days ago.  Despite the tremendous performance of AAPL stock since iPOD and iTUNES et al. captured the public's consciousness the company was short-sighted in allowing a Cult of the CEO environment to thrive.

For AAPL reluctant disclosure, obfuscation, and misdirection may be good marketing tactics for a product launch to keep its fanboys on edge, but was completely irresponsible in regards to Jobs' health; of course shareholder should have received an honest and timely appraisal when the issue first arose.  The stock is being punished after-hours and deservedly so.  If Jobs' prognosis is to never return, than $60/sh is not out of the question, especially with such a sour market backdrop.  Bullish analyst loudly protest that AAPL has a deep bench, a fat balance sheet, and growing robustly, but so what? Most shareholders are putting as much faith in the CEO/Visionary that favors black clothing as in the product line.  Steve Jobs, rightly or wrongly, was considered the company's economic moat.

More Repurcussions.  Not to say that there are not ample reasons for gloom being confirmed basis (real estate, financials, retail, advertising, blah-blah-blah), but I'm afraid the outsized mindshare AAPL has will offer the perfect excuse for a another wave of major selling tomorrow. Hopefully investors avoided being fully invested (long) while the hypothetical road to stabilization in our financial system remains unclear. Selling all (or completely hedging) longs at the open may prove to be a prudent response all things considered. This is a trader's market and this possibility should not be beyond comprehensible.

Above: King Sanford Weill Medical Center

Citigroup.  It's funny how little flack empire builder Sandy Weill has taken recently despite the official death of the Citi financial supermarket business model. Here's a reminder that when you, fair reader, become a billionaire don't forget to get out before the market turns, and spread your wealth to every worthy charity you come across, especially hospitals and schools. Of the two the latter is the more important part of your legacy.  It also helps to have a villain like Bernie Madoff heavily occupy media coverage. 

Disclosures: No position.