Bill Greene of Morgan Stanley says,

[brokenwrench]

From this weeks PBB. PlaneBusiness Banter

"Buying surviving airlines after a tipping point can be a very profitable trade. However, we strongly suggest that investors exercise patience with this trade and wait until there are clear signs that a Tipping Point in the airline industry has been reached. In our view, an investor does not need to be early to an airline trade to generate outsized returns given the upside opportunity should the cycle turn. Therefore, waiting for a clearer industry catalyst to emerge and thus protecting oneself from the large downside risk associated with deteriorating fundamentals is worth potentially missing the first significant move upward. In short, investors should have airlines on their radar and be on the lookout for signs of emerging industry catalysts, but guard against the temptation of buying too soon."
An important point to note, especially when reading our next column, was the point that Bill made concerning liquidity and bankruptcies. One, he does not think that every airline will file for bankruptcy in the next two years. Additionally, "As carriers with relatively weaker liquidity positions are forced to cut capacity and restructure operations, industry fundamentals could improve for surviving carriers who benefit from the competitive capacity cuts. Therefore, if an investor can identify the airlines with a lower probability of a liquidity crisis, there exists potential for a very profitable trade."

So how did Bill rank the players he covers, in terms of liquidity?

Worst to First

US Airways
American Airlines
Northwest Airlines
Continental Airlines
United Airlines
Delta Air Lines
JetBlue

Yes, in this case, it pays to be last.

Two other considerations that Bill mentioned include the potential upside to a stock, and the effect on a particular stock as a result of other players going into bankruptcy, consolidation efforts, etc.
After throwing all this around in the Morgan Stanley Mixmaster, Bill comes to the conclusion that US Airways, American Airlines, and United offer the greatest appreciation potential from current price levels -- if they survive.

 

[local 12 proud]

Shouldn't Southwest be "last"?