I’m pretty sure I haven’t ever written about Jared Dillian and his Bull’s Eye Investor newsletter before, so when I was sifting through the pile of ads forwarded by readers last week this one caught my eye — it’s a pitch based on Black Friday, which has come and gone, but that was just a hook to get folks to read the email. So what are they really talking about?
Well, Dillian is a former Wall Streeter who got some acclaim for his daily trading letter for “professional investors”, The Daily Dirt Nap, and author of the book Street Freak: A Memoir of Money and Madness about his years trading at Lehman Brothers — and he’s now with Mauldin Economics to publish this stock-picking newsletter for individual investors. I don’t know much else about him, but the spiel says he’s a contrarian (as most of us wish ourselves to be) and that he relies on consumer and investor behavior and trends and his interpretation of behavioral economics.
Whatever that means. Basically, the pitch is like most others, “me pick good stocks.” So shall we see what those stocks are?
“Black Friday Deal #1: The Miser
“Take, for example, a company that is, without exaggeration, the epitome of the Black Friday bargain basement spirit. Not because it is a penny stock (far from it), but because its mission statement is to provide its customers with the most inexpensive product possible.
“To that end, they’ll cramp you into tiny spaces, neglect to feed you, and charge you even for carry-ons. And did I mention: they make a lot of money doing so, and their customers love it.
“I am, of course, talking about an airline – one that sells plane tickets cheaper than most other airlines in America….
“This company has no debt and is hugely profitable. The stock has been rising rapidly for over a month, gaining 46.4% between October 15 and November 10. But in the last few days, it’s been taking a breather in the $75 range, so I’d recommend getting in before it resumes its upward trajectory.”
This one is Spirit Airlines (SAVE), which was perhaps “taking a breather” a couple weeks ago in the mid-$70s, but has indeed resumed that upward trajectory (along with pretty much all the other airline stocks) as oil prices have been falling. This has been a growth stock darling for a while, and a pick of Louis Navellier a few times over the past year as well.
If you’re worried about oil falling further but think the economy is still OK otherwise, airlines are a popular pick for that idea and have been a worthwhile way to hedge against those collapsing oil stocks in your portfolio — they were particularly attractive when the Ebola panic drove the prices down for a little while, but even now they’re not all that expensive. You can almost picture all the airline executives rubbing their hands together and cackling like Scrooge McDuck about the fact that their planes are full, consolidation and a growing oligopoly means they haven’t yet gone back to the overcapacity/overbuilding that tormented them for much of the past decade, and now their biggest variable cost (fuel) is dropping like a stone.
I don’t know Spirit that well, but it’s been the growth darling of the bunch — and it’s all about the consumer, this is not a business class airline but they slash prices and then nickel and dime their passengers for any additional service (the first airline to put a credit card reader on the bathroom door will probably be Spirit or Ireland’s Ryan Air, I’d bet). Personally, I’ve been riding this trend with some long-term LEAP options on JetBlue (JBLU), which also has some internal changes that are likely to boost earnings (including the likely unpopular decision to start charging for baggage next year and to cut their legroom like everyone else, as well as some potentially lucrative new cross-country “first class” style offerings), but the upward move is really an industry-wide phenomenon, they’ve pretty much all had a very good year and a spectacular last couple months since the “Ebola bottom.”