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TheStreet Open House

Book Profits on Airlines Pre-Earnings

NEW YORK ( TheStreet) -- Airline stocks have been flying high in the sky so far in 2013. Today I profile 11 airlines and nine of them report quarterly results next week. All are flying well above their 200-day simple moving averages, which reflects the risk of a reversion to the mean particularly given that three are rated hold and eight are rated sell according to ValuEngine.

All 11 airline stocks are overvalued, seven by more than 20%. Ten of 11 are flying higher by double-digit percentages over the last 12 months except one, which is down by less than 5%. Nine are higher by 26.1% to 114.2%. All are projected to be at lower altitudes 12 months from now.

The airline industry is 20.6% overvalued in a market that's trading under a ValuEngine valuation warning with 75.3% of all stocks overvalued, and with 42.2% of all stocks overvalued by 20% or more. We still show that 15 of 16 sectors are overvalued, 13 by double-digit percentages.

Given this investment environment investors should not be adding to positions in airlines and should consider taking profits before these earnings reports are released next week. Investors should reduce allocations to stocks to 50% of their equity market allocations.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

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