NEW YORK (TheStreet) -- With experts forecasting turbulence, investors with exposure to the airline industry should fasten their seatbelts.
On Wednesday, the International Air Transport Association presented a sour outlook for the airline industry. Citing factors including continued economic woes from Europe, the agency expects profits to take a heavy hit in 2012.
The cloudy outlook from the IATA is just the most recent factor to weigh on the airline industry in the final weeks of 2011. In late November, investors were also greeted to news that American Airlines parent, AMR, had become the latest member of the U.S. airline industry to file for bankruptcy protection.
Factors including the IATA's concerning predictions and AMR's bankruptcy have helped to cap an already turbulent year for this corner of the transportation industry. Year to date, the Guggenheim Airline ETF (FAA) is off approximately 30%. Comparatively, the broad-based iShares Dow Jones Transportation Average Index Fund (IYT) has dipped less than 3% since the start of 2011.This dismal performance is likely enough to dissuade many from trying their luck here. It is not the only concerning issue with the product, however. The troubled fund also struggles with liquidity. At this time, the fund's average daily trading volume stands at a paltry 6,700. While the dedicated airline ETF should be avoided, there are other ways ETF investors can take to the skies. For example, aerospace and defense funds like iShares Dow Jones U.S. Aerospace & Defense Index Fund (ITA) and PowerShares Aerospace & Defense Portfolio (PPA) are worth keeping on the radar. Rather than targeting names like United Continental (UAL), Southwest (LUV) and Delta (DAL), these funds are designed to target the companies responsible for producing aircrafts and providing the industry with supplies. Top holdings include names such as Boeing (BA), United Technologies (UTX), Goodrich (GR) and General Dynamics (GD). This corner of the industrial sector has not been immune to headwinds. On the contrary, news of the Congressional supercommittee's failure to reach a suitable budget reduction agreement has raised alarms. As many have noted, under a sequestration scenario, half of the required $1.2 trillion in cuts would come from security programs. For companies like Boeing and Lockheed Martin which rely heavily on government contracts, the impact could be devastating.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV