Put Airline Stocks on Your Radar Screen By Arne Alsin Special to TheStreet.com 7/12/01 11:28 AM ET

It's no secret that I've liked the airline group for a few months. The sector represents the antithesis of the technology and telecommunication momentum stocks that were destined to change the world in the last cycle.

The truth is, of course, that the world is changing for the better because of the technology revolution. But change and impact don't translate into investment gains when excessive capital is deployed. Astute investors look at the flip side of the capital-flows coin and find sectors where the competitive landscape is more benign, areas that have been ignored for the past few years.

Without the stress of excess capacity, I continue to like the mid-cap stocks that I have recommended in sectors such as chemicals, auto parts, retail and apparel, among others -- and airlines, of course. Here is the performance to date of the airline stocks I've highlighted. All three have outperformed the broader market by an average of 6.24%.

Flying High All three airline picks have outpaced the S&P 500 in the same time period.
Stock	Date of Column	Symbol	Cost	7/11 Close	Gain	Performance of S&P 500	Outperformance
UAL	12/28/00	UAL:NYSE	$35.88	$34.56	-3.68%	-11.48%	7.80%
Delta Air Lines	3/30/01	DAL:NYSE	$39.50	$43.82	10.94%	1.50%	9.44%
Northwest Airlines	4/17/01	NWAC:Nasdaq	$23.50	$23.66	0.68%	-0.80%	1.48%
Avg. Return						2.65%
Avg. Outperformance						6.24%
Source: Alsin Capital Management

I made it clear in a recent column that I made a mistake on UAL (UAL:NYSE - news - commentary), that I overreached for this ineptly managed company. With my Top-10 Turnarounds up 28% for the year, I'm keeping UAL on the books for the balance of the year, though I only own a tiny position. A much better pick than UAL is Continental Airlines (CAL:NYSE - news - commentary), which I believe has the best management in the industry.

Recognizing Value

Commuter airlines, such as ExpressJet, sell at rich multiples because of their high margins and less cyclical revenue stream. Comparable commuter SkyWest (SKYW:Nasdaq - news - commentary) currently sells for 3 times revenue. Even if ExpressJet receives half of that valuation, the shares received by Continental shareholders next year could represent a 50% windfall for them, assuming Continental shares remain constant. Though Continental will no longer have ExpressJet to contribute to sales and earnings (about 8% of sales), an improved business backdrop for Continental could make up the difference, and more.

Send letters to the editor to letters@realmoney.com.
Read our conflicts and disclosure policy.
Order reprints of RealMoney.com articles.	Top
Research Now on CSFBdirect CAL DAL UAL Get a FREE Handspring™ Visor™ from CSFBdirect.

RELATED STORIES
	The Turnaround Artist Checking Up on the Conservative Portfolio 7/9/01 12:07 PM ET It's time to stop the large-cap love affair and get interested in value again. The Turnaround Artist Think Cycles, and Buy Variance 7/2/01 12:10 PM ET Information alone won't give you an edge. You need to know how to process it. The Turnaround Artist Revisiting the Top-10 Turnarounds 6/27/01 10:47 AM ET Check in to see how some favorite turnaround plays fared over the past six months.

ONLINE INVESTING Get a FREE Handspring™ Visor™ from CSFBdirect. BANKING Get a $50 bonus from NetBank.