BOSTON (TheStreet) -- Airline stocks have rallied in the past month, with US Airways (LCC) and UAL (UAUA) soaring more than 65%. Hedge fund manager David Tepper was prescient enough to initiate positions in both stocks, along with Delta Air Lines (DAL), last quarter.

Tepper's Appaloosa Management buys down-and-out companies, a strategy that doubled the value of its four funds last year. While his $87 million bet on airlines is paying off so far, a jaunt into the world of air transportation offers more risk than reward.

In 2009, the airline industry suffered its worst year in history as consumers curtailed travel and companies shipped fewer goods, according to the International Air Transport Association. The trade group has been more optimistic about 2010, cutting its loss forecast by almost half to $2.8 billion.

Analysts are bullish on airline stocks. Of nine analysts covering UAL, eight advise purchasing its shares and one recommends holding them. UBS ( UBS) and Hudson Securities offer the loftiest price target, expecting the stock to rise 52% to $30. Similarly, nine, or 82%, of researchers following Delta suggest purchasing its stock. Just one suggests holding it. Barclays projects a $19 share price, implying that a 46% upside remains. The outlook on US Airways is mixed, with five firms rating its stock "buy" and four rating it "hold."

Tepper is known for making big wagers on shaky companies, but mutual funds also have chips on the table. Fidelity Investments owns 14% of Delta and Wellington Management controls 11%. Janus Capital ( JNS) holds 12% of UAL's outstanding shares.

Long Island-based Renaissance Technologies, a quantitative hedge fund founded by mathematician Jim Simons, reshuffled airline bets last quarter. Renaissance's portfolio holds thousands of equities and automates trading. It reduced its Delta position by 42% to 4.4 million shares and cut its JetBlue ( JBLU) stock by 18%. It enlarged its UAL holdings by 30% to more than 4 million shares. Its preference for UAL proved lucrative. The stock has surged 55% this year, besting Delta's 15% jump and JetBlue's 0.7% gain.

Though institutional money is boarding airline stocks, it's imprudent for individual investors to follow suit. Domestic carriers have a history of mismanagement and bear anomalous risks. United sought bankruptcy protection in 2002 and didn't emerge until 2006. US Airways filed for bankruptcy twice between 2001 and 2004.

While the companies posted fourth-quarter losses, their performances beat expectations. UAL beat by a margin of 6%, US Airways by 56% and Delta by 90%. Despite beating consensus, all companies were still writing in red ink. UAL suffered a per share loss of $1.44, Delta posted a loss of 3 cents and US Airways reported a loss of 49 cents. All three became profitable on an operating basis, which excludes certain expenses.

The critical risk, which could outweigh the industry's expected 2010 revenue growth of 13%, is an unanticipated rise in fuel costs. Barclays ( BCS) forecasts jet fuel to cost $2.19 a gallon this year, but a spike in crude oil prices would amplify costs and dampen airlines' prospects. Though hedging is ubiquitous, a geopolitical event or demand in emerging markets could threaten already-thin margins.

Tepper has been lauded for his impressive performance last year, but so has his contemporary John Paulson. Both routed peers in 2009 by scooping up financial sector assets near March lows. Unlike Tepper, Paulson didn't buy airline stocks last quarter. Paulson is best-known for betting billions against subprime mortgages.

This unlikely turnaround story could quickly transform into a "not again" scenario. Airlines are only suitable for speculative capital. Individuals seeking buy-and-hold investments are more likely to succeed by picking the winners in less volatile industries. TheStreet's equity model, which ranks stocks based on expected risk-adjusted performance, rates UAL, Delta, US Airways, JetBlue, Continental Airlines ( CAL) and AirTran ( AAI) "sell."

-- Reported by Jake Lynch in Boston.

More from Stocks

Tesla Model 3 Delivery Time Falls, but Will It Help the Stock?

Tesla Model 3 Delivery Time Falls, but Will It Help the Stock?

Baidu Stock Plummets After COO Qi Lu Resignation

Baidu Stock Plummets After COO Qi Lu Resignation

18 Top Stocks Hedge Funds Own That Goldman Sachs Thinks Will Keep Outperforming

18 Top Stocks Hedge Funds Own That Goldman Sachs Thinks Will Keep Outperforming

Dow Rises Sharply as U.S.-China Trade Tensions Thaw

Dow Rises Sharply as U.S.-China Trade Tensions Thaw

One Chart on Global Trade Conditions Should Make You Worried About Stocks

One Chart on Global Trade Conditions Should Make You Worried About Stocks